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KSM Blog | Katz, Sapper & Miller CPA

CARES Act Provides Additional Funding Options for Businesses

Posted 10:30 PM by

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes funding options for businesses of all sizes and in a multitude of industries. The widely discussed Economic Injury Disaster Loan (EIDL) and highly coveted Paycheck Protection Program (PPP) are two such options. But businesses are now looking for additional funding sources to provide relief in the midst of the COVID-19 crisis.

The following loan programs are also available, and, unlike the EIDL and PPP, they include funding for businesses up to 10,000 employees. Unfortunately, there is no forgiveness component of either loan program discussed below, and the Treasury Department still needs to issue further guidance regarding the implementation of these programs.

Main Street Lending Program:

U.S. businesses with up to 10,000 employees or $2.5 billion in 2019 annual revenues, including businesses with less than 500 employees are eligible for the Main Street Lending Program. Other eligibility requirements include:

  • Business must have significant operations and a majority of its employees based in the U.S.
  • Lenders will have the discretion to originate new loans under the Main Street New Loan Facility (MSNLF) or use the Main Street Expanded Loan Facility (MSELF) to increase the size of existing loans to their eligible customers.
  • MSNLF and MSELF are mutually exclusive; borrower may not receive both a MSNLF and MSELF.
  • Borrower may not participate in the Primary Market Corporate Credit Facility if they participate in the MSNLF or MSELF.
  • Borrower is eligible to participate in the Main Street Lending Program and the PPP.

Terms and Conditions

  • Four-year maturity
  • Payment of principal and interest deferred for one year
  • Adjustable rate of SOFR + 250-400 basis points
  • Minimum loan size of $1 million
  • Origination fee of 1% (additional fees may apply)
  • No prepayment penalty
  • Maximum loan amount dependent on if it is a new loan or an increase of existing loan
    • New loans that originate after April 8, 2020 (obtained via MSNLF)
      • No security required
      • Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA
    • If business had an outstanding loan prior to April 8, 2020, obtained via MSELF, bank may increase the loan subject to:
      • Maximum loan size that is the lesser of (i) $150 million; (ii) 30% of the eligible borrower’s existing outstanding and committed but undrawn bank debt; or (iii) an amount that, when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the eligible borrower’s 2019 EBITDA
      • Loan may be secured or unsecured; treated as an extension of the original loan
  • Borrower must make the following attestations:
    • Borrower will not use the proceeds of the loan to repay other loan balances.
    • Borrower requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (COVID-19) pandemic, and that, using the proceeds of the loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
    • Until the date that is 12 months after the date on which the loan is no longer outstanding:
      • Borrower will not pay dividends or make other capital distributions with respect to the common stock of the business.
      • Officers or employees with total compensation over $425,000 in calendar year 2019 shall not receive total compensation in excess of what was received by the officer or employee in calendar year 2019. Severance pay or other benefits received upon termination shall not exceed twice the total compensation received by the officer or employee in calendar year 2019.
      • Officers or employees with total compensation over $3 million in calendar year 2019 shall not receive total compensation over $3 million plus 50% of the excess over $3 million of what was received in calendar year 2019.

Other Assistance for Mid-Sized Businesses:

If you did not qualify for the PPP due to employee count, another option includes the more generic “other assistance for mid-size businesses” listed in the CARES Act. This assistance is designed for U.S. businesses with 500 to 10,000 employees that have not otherwise received adequate economic relief in the form of loans or loan guarantees provided under the CARES Act.

Additional guidance is needed, but some restrictions noted in the Main Street Lending Program may also apply to this program.

Terms and Conditions

  • Interest rates on the financing be no higher than 2% per annum
  • Six-month deferral of interest and principal payments (or longer, as determined by the Secretary)
  • Borrower must make a good-faith certification that:
    • The loan is necessary to support the ongoing operations of the borrower.
    • The funds it receives will be used to retain at least 90% of the borrower’s workforce, at full compensation and benefits, until Sept. 30, 2020.
    • Borrower intends to restore not less than 90% of its Feb. 1, 2020, workforce and restore all compensation and benefits within four months of the declaration of the termination of the COVID-19 crisis.
    • Borrower is not currently in bankruptcy.
    • Business is domiciled in the U.S. with significant operations and employees in the U.S.
    • Borrower will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan.
    • Borrower will not abrogate existing collective bargaining agreements for the term of the loan and two years after completing repayment of the loan.
    • Borrower will remain neutral in any union organizing efforts for the term of the loans.

If you have questions, comments, or concerns about either of these programs, please reach out to your KSM advisor or complete this form.

VISIT THE KSM COVID-19 RESOURCE CENTER

About Katz, Sapper & Miller
KSM is a nationally recognized consulting, tax, and audit firm. Through our deep experience across multiple disciplines and industries, we leverage emerging technologies, combined with our people’s differing perspectives, ingenuity, and creativity, to help our clients solve their most difficult challenges.

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