The COVID-19 pandemic has caused unprecedented disruption to the U.S. economy, our health systems, and the American lifestyle. In response to government Stay-at-Home orders, both federal- and Ohio state-level programs have been made available to businesses of all sizes to help provide relief in this crisis.
Federal Government Programs Available to Businesses
Main Street Lending Program
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) allocates up to $600B for the Main Street Lending Program, which provides relief, including financial support to pay rent, to small- and medium-sized businesses impacted by COVID-19. Interest rates are between 2.5% and 4%. Payments are deferred until the second year, and the loans mature in four years. The three categories of loans – Main Street New Loans, Main Street Expanded Loans, and Main Street Priority Loans – have a minimum loan size of $500K; the maximum loan size is $25MM, $200MM, and $25MM, respectively. The loans are available until September 30, 2020.
Eligible borrowers, including those with up to 15,000 employees or up to $5B in annual revenue, may apply through eligible lenders. Since we started drafting, the limits have changed as many of these government programs continue to evolve as we see the various ripple effects of government lockdowns. It is recommended that businesses reach out to their banks to confirm that they are participating in the Main Street Lending Program.
Payroll Protection Plan Liquidity Facility
Under the CARES Act, the Payroll Protection Plan (“PPP”) initially allocated up to $349B, and subsequently on April 27, 2020, authorized the replenishment of $310B for the second round of PPP, in forgivable loans to incentivize small businesses to retain and pay employees during the COVID-19 pandemic. Eligible borrowers, including businesses with 500 or fewer employees, may apply through regulated lenders. As of May 12, 2020, only $118.6B in the second round of funding remained. It is unclear if a third round of funding will occur.
Less than 25% of the loan proceeds can be used for rent, mortgage interest, and/or utilities over the eight-week period after the loan is made. If the borrower utilizes less than 25% of proceeds for these occupancy costs and at least 75% for payroll, then the loan will be fully forgiven, effectively becoming a grant. If after the eight-week period, there is a non-forgiven portion, the balance can be repaid at any time or retained with 1% interest applied over a 24-month term, with principal due upon maturity. It is recommended that businesses contact their banking relationship managers to seek assistance in applying for the second round of the highly demanded and competitive PPP.
Economic Injury Disaster Loans
Additionally, under the CARES Act, small businesses may be eligible for Economic Injury Disaster (EIDL) loans. Though EIDL loans are not forgivable, eligible borrowers may request an advance of $10,000 to be paid within three days of application to cover allowable working capital needs. This $10,000 does not have to be repaid, but is subtracted from a PPP loan. Similarly, EIDL loans should not be used for the same purpose as the PPP loan.
Eligible borrowers fall under the same category as PPP, but also must demonstrate “substantial economic injury” due to COVID-19. The loan amount may be up to $2,000,000 and up to a 30-year term. The interest rate is 3.75% for small businesses, and 2.75% for non-profits. Furthermore, a credit check is required and collateral may be required. Applications may be submitted directly to the SBA, rather than an SBA-approved lender. At this time, the SBA is only accepting agricultural business applications due to limitations in funding availability and the unprecedented submission of applications already received. Be sure to track EIDL developments to see if funding expands and thereby qualifies your business to apply.
Market Corporate Credit, Term Asset-Backed Securities Loan, and Municipal Liquidity Facilities
To increase credit to businesses, on March 23, 2020, the Federal Reserve broadened the Primary and Secondary Market Corporate Credit Facilities, in addition to the Term Asset-Backed Securities Loan Facility. These programs will support up to $850B in credit, backed by $85B in credit protection by the Department of Treasury. Additionally, on April 9, 2020, the Federal Reserve announced the Municipal Liquidity Facility to help state and local governments manage cash flow pressures, whereby the Federal Reserve would purchase up to $500B in short-term notes directly from eligible issuers.
On May 12, 2020, House Democrats released their latest coronavirus relief bill, including $175B in rent, mortgage, and utility assistance. The bill will be voted on in the House on May 15, 2020 and then, if passed, proceed to the Senate.
Similarly, Representatives Denny Heck (D-WA) and Maxine Waters (D-CA) introduced the Emergency Rental Assistance and Rental Market Stabilization Act, a $100B program aimed at helping pay multi-family residential rent during the pandemic. Senator Sherrod Brown (D-OH) is expected to introduce a companion bill in the Senate.
Programs such as these indicate that there will continue to be economic stimulus that impacts real estate. Continue to track these initiatives, as well as other proposals along the same vein to see how your business might be impacted.
Ohio State Government Programs Available to Businesses
JobsOhio Innovation Fund
Amidst the pandemic, JobsOhio created the JobsOhio Innovation Fund, which allocates $50MM to high priority investor-backed companies – especially those whose financing has been delayed due to COVID-19. The Fund provides convertible loans of $250K to $2.5MM to assist Ohio-based, venture-backed private businesses at the Series A+ stage bridge until their next funding, sustain employees, and create jobs after the pandemic.
JobsOhio Rapid Development Initiative and Workforce Retention Program
The Rapid Development Initiative and Workforce Retention Program has been built for current JobsOhio clients. The purpose of the Initiative is to broaden reimbursement costs, improve fund access, and provide compliance waivers.
JobsOhio Loan Deferral and Workforce Retention Loan Program
JobsOhio instituted a six-month deferral of payment on its loans. Furthermore, JobsOhio created the Workforce Retention Loan Program, which provides companies with forgivable payroll loans. The latter is by invitation only.
Ohio Development Services Agency Initiatives
On April 7, 2020, as a reaction to the current crisis, the Ohio Development Services Agency (“ODSA”) created the Office of Small Business Relief (“OSBR”). The OSBR’s purpose is to identify ways to support small businesses within the State through coordinating resources provided by state programs, supporting existing programs, and developing new programs. Additionally, for existing ODSA borrowers, there is a six-month deferral on loans.
Allegro is staying up to date on the rapidly developing hurdles for businesses during the pandemic. If your real estate is disrupted by this economic shutdown, and you would like to know how we can help you with your real estate, please reach out to Michael Cantor at [email protected].