The Coronavirus (COVID-19) is taking a major toll on the U.S. and World Economies. Construction businesses have been affected in various ways. For some, it has been business as usual as they are deemed “Essential” and continue to operate on various projects. For others, mandatory shutdowns have created the same hardships felt by many other types of businesses. Right now cash and liquidity is important to all businesses as we wait for the pandemic to subside. In the meantime, the government has made support available to many businesses under The Coronavirus Aid, Relief and Economic Security Act (CARES Act). This legislation provides useful provisions for contractors during this time. Cash and liquidity is always vital for contractors and their ability to obtain surety bonds.
Payroll Protection Program
The PPP is a government backed program to help keep your workers employed. Almost any business under 500 employees can qualify. These loans can be extremely valuable for contractors and most should probably apply. The amount of the loan is based on a contractors payroll. The calculation includes things such as wages, commissions, health insurance premiums, ect. Basically, the loan will allow 2.5 times the monthly payroll. The loan can also be used for things such as rent and mortgage payments. The most exceptional part of these loans is the ability for them to be forgiven by the government. This is the reason most contractors should apply. Even better, the government has said that if your loan is forgiven, it will not create a taxable event. In order to be forgiven, the funds must be used for the appropriate expenses with a minimum of 75% going to payroll and the contractor must keep employees on the payroll for the eight week time frame.
To apply for a PPP loan, contractors need to find a lender that works with the SBA 7(a) Program. The application process begins April 3rd. I attended a presentation from a large bank who believes this money will run out and I would advise contractors to get their application in early. Another best practice would be to keep these loan proceeds completely separate from other funds. The term of the loan is a 2 year period. You can view more on the SBA’s page here. The U.S. Chamber of Commerce has also put out an excellent piece on the program and who can qualify. Contractors can find that information here.
Other CARE Act Provisions
The CARE Act also includes other monies that could help contractors. There is $25 billion available for transit infrastructure grants. However, agencies have wide latitude in using that money and it may be used more for replacing lost revenue than for building and improvements. Only time will tell if this benefits the construction industry.
Economic Injury Disaster Loans (EIDL)
In addition to the PPP, contractors may be eligible for an Economic Injury Disaster Loan. These loans allow businesses to borrow up to $2 million at very favorable terms for working capital purposes. These terms include up to a 30 year term at a 3.75% interest rate. As we’ve said many times, working capital is vital to contractors as well as their surety bond capacity. Having liquidity at such favorable terms could be a huge asset if a contractor can qualify. It may also help if a contract expects to have other liquidity issues in the future. You see examples of how this could happen here. Because of COVID-19, all states and U.S. territories are eligible for EIDL. You can read more about the program and eligibility here.
There Is Probably More Assistance Coming
Lawmakers are continuing to discuss another piece of legislation that could fund much needed infrastructure and potentially help contractors fill their backlog. Early discussions have discussed another $2 Trillion dedicated to infrastructure spending. Challenges remain however as lawmakers on both sides have been struggling to agree on a way to fund infrastructure for some time.
We believe all contractors should explore these government assistance programs during this crisis. MG Surety Bonds and our staff are available to discuss how any borrowing or assistance may affect your surety bond program. We want to be a resource for contractors and all businesses during this challenging time period. We wish for health and a quick recovery for individuals and businesses.