Insights

MPL General Counsel’s Corner: CARES Act Passed by Senate, Initial Unemployment Numbers & More

March 26, 2020

Hi Everyone:

There are lots of little things that are popping up today.  Below are some of the more important updates:

  1. CARES Act passed by Senate, House passage possibly tomorrow – As I mentioned yesterday, the details of the CARES Act are slowly trickling out.  The latest update that I have received is that the US Gov’t will likely be taking equity stakes in airlines in exchanges for rescue grants.  There is more to come.  This definitely falls into the “We have to pass the bill so that you can find out what is in it” category.  See the article at the following link for an update:  https://www.wsj.com/articles/mnuchin-indicates-u-s-to-take-stakes-in-airlines-in-exchange-for-grants-11585229047
  2. Initial Unemployment Numbers – 3.283 million, CARES Act provides additional funding – Unemployment claims were ~3,000,000 higher than the prior week.  For perspective, the Great Recession peaked at 665,000 in 2009 and the all-time high was 695,000 in October 1982.   Keep in mind that companies really did not have a choice.  Also, with the likely to be passed CARES Act, there is an additional $600/week, which is on top of the amount received in the State System.  To put that number in perspective, in PA, the max benefit per week is $823.  Combined, a filer would be receiving $1423 (or $73k per year annualized).  In NY the maximum weekly benefit is $405, which when added to the CARES Act amount is $1005 (or ~$52k per year annualized).  This could hinder the return to work for many once we move past the current crisis.
  3. Overview of Federal and State (MD & PA) Aid Programs:  I received three documents from Hal Carney (hcarney@peoplesbanknet.com; 717-747-1562) @ People’s Bank.  They provide nice overviews of the emergency aid programs available in PA, MD and on the Federal level.
  4. COVID-19 Working Capital Access (CWCA) Loans from Pennsylvania Infrastructure Development Authority (PIDA).  PIDA has issued guidance on its emergency working capital loan program in response to the COVID-19 crisis.  We have linked that guidance document here, along with the list of local Economic Development Offices where you may apply for the loans.  These loans will have the following features:
    1. Eligible Borrowers.  An eligible small business enterprise is a for-profit corporation, limited liability company, partnership, proprietorship or other legal business entity located in the Commonwealth of Pennsylvania and having 100 or fewer full-time employees worldwide.  Retail/service business and agricultural producers are eligible but with certain caveats to the loans available (see below).
    2. Eligible Costs.  (i) Working capital, which for purposes of this program is considered capital used by a small business for operations, excluding fixed assets and production machinery and equipment; and (ii)  any eligible working capital cost, as defined above, incurred by the eligible business enterprise three (3) months prior to submission of the loan application will count as an eligible cost toward either the loan amount or, if applicable, the matching investment requirement. Retail / service enterprises are able to incur eligible working capital costs up to six (6) months prior to submission of the loan application. Please note that evidence of eligible working capital costs incurred equal to the amount of the total project cost will be required prior to the loan being disbursed.
    3. Ineligible Costs. Projects relating to the following activities are not eligible:  (i) Providing funds, directly or indirectly, for payment whether as loan repayment, dividend distribution, return of capital, loans, or otherwise to owners, partners or shareholders of the business enterprise, except as ordinary compensation for services rendered; or (ii) finance a project located outside the geographic boundaries of this Commonwealth.
    4. Rate and Term.  The interest rate for the program is 0% except for agricultural producers in which case the interest rate is 2% fixed for the life of the loan.   Loan terms are three years with a 12-year amortization. In addition, 1) no payments will be due and payable during the first year, 2) principal and if applicable, interest payments will be due monthly for years two and three, and 3) A balloon payment will be due and payable at the end of the third year.
    5. Loan Amounts.  Maximum amount is $100,000.  No match required except for retail/service providers in which case the loan can fund up to 50% up to a maximum of $50,000.
    6. Collateral.  Lien on all assets with highest position available (subordinate to any current lender with a lien on assets).
    7. Guarantees.  Personal guaranty required from any owner with a 20% or greater equity stake.
    8. Debt Service Coverage Ratio.  The borrower must maintain a DSCR of 1:1 or better during the life of the loan.

Please see all of our updates at the following link:  https://mpl-law.com/resource-center/

 

As always, please don’t hesitate to email myself or anyone in our office with any questions or comments.  Also, please feel free to forward our updates to others. 

 

Keep moving forward!  We will get back to normal.

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