• Visit Us On TwitterVisit Us On FacebookVisit Us On Linkedin

    Quick Guide: Main Street Lending Program

    For the past few weeks we’ve been bombarded with information on the most popular aspects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, but the Federal Reserve took additional steps to bolster the economy with the Main Street Lending Program (MSLP). Designed to further assist small and medium-sized businesses this program provides liquidity during the coronavirus crisis. The MSLP enables new financing of eligible term loans from eligible lenders to eligible businesses by making an extra $2.3 trillion in loans available. As with the Small Business Administration’s Paycheck Protection Program (PPP), businesses should reach out to their banks or lenders to apply for one of these loans. However, we need to mention that for now the minimum loan size is $1 million and the interest rate is expected to be higher than that of PPP loans.

    Businesses will need to attest that they require financing due to COVID-19 and have made efforts in the areas of retaining employees as well as maintaining payroll during the term of the loan. An important stipulation of the use of the loan is that the borrower may not use proceeds to repay or refinance pre-existing loans. Small businesses that participate in the PPP may also take advantage of the Main Street Program.

    The MSLP will enhance support for eligible borrowers that were in good financial standing before the crisis by offering four-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Interest rates on this unsecured debt will be based on the Secured Overnight Financing Rate (SOFR) plus 2.5% to 4%, depending on the credit risk. SOFR is a newer benchmark that is due to replace the London Inter-Bank Offered Rate (LIBOR) next year.

    Amortization of principal and interest is deferred for one year (the amortization schedule for an eligible loan is not otherwise specified in the term sheets released by the Federal Reserve). Eligible lenders (banks) may originate new MSLP loans or use them to increase the size of existing loans to businesses.

    Prepayment is permitted without penalty and there is a 1% loan origination fee based on the principal amount of the loan. However, unlike the PPP, these loans contain no provisions for forgiveness.

    The borrower must agree to not use the proceeds of the loan to repay other loan balances and concur that it will not seek to cancel or reduce any of its outstanding lines of credit with the lender or any other lender.

    There are compensation restrictions in that until one year after the loan is repaid, no officer or employee of the business whose calendar year 2019 total compensation exceeded $425,000 receives from the business total compensation that exceeds during any consecutive 12-month period the total compensation received by that person in 2019. Additionally, severance pay or other termination benefits cannot exceed two times the maximum compensation received by that person in 2019.  Lastly, no officer or employee of the business whose total compensation exceeded $3 million in calendar year 2019 may receive during any consecutive 12-month period total compensation in excess of $3 million plus or 50% of the compensation over $3 million of total compensation received from the business in calendar year 2019.

    The good news is that banks are already seeking changes as the Federal Reserve finalizes the MSLP in order to expand eligibility. The feedback has been for new enhancements that make the program workable for lenders as this would get the funds into the real economy quickly. The program’s $1 million minimum loan size appears to be too large and will exclude many small businesses that need to borrow a smaller amount while a minimum of $100,000 seems more appropriate. Calls have been made to reduce the floor to $50,000. As some lenders have yet to adopt to SOFR, those lenders want to use LIBOR or other benchmarks.

    Further, other industry groups have made requests to include more flexibility on the duration of the loans allowed and the maximum size of the loan, as well as giving lenders more discretion as how to supervise capital distribution restrictions that are imposed on borrowers as a condition of the loan.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

    Read more

    Quick Guide: CARES Act Payroll Tax Deferral

    News of the Coronavirus Aid, Relief, and Economic Security (CARES) Act has made headlines every day since its enactment in late March. As of April 16, the Small Business Administration (SBA) announced that the initial amounts appropriated for the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) (including up to $10,000 emergency grants) for the COVID-19 virus situation have run out, but fear not for businesses concerned about cash flow can find solace in two other CARES Act provisions.

    One provision of the Act allows the employer portion of payroll tax deposits to be utilized if no PPP loan is forgiven. This provision seeks to alleviate the burden on employers struggling to make payroll by allowing the employer’s share of the 6.2% social security tax that would otherwise be due from the date of enactment through December 31, 2020, to be deferred and then paid in two 50% installments by December 31, 2021 and December 31, 2022. For those who are self-employed, you can immediately defer paying 50% of your self-employment tax that would be due from the date of enactment through the end of 2020 until the end of 2021 (25%) and 2022 (25%).

    This means an employer who incurs its 6.2% share of Social Security tax in 2020 may defer payment of that tax until 2021 and 2022.

    The second provision allows an employer to receive an immediate credit against those yet-to-be paid payroll taxes via the sum of the emergency medical leave credit, sick leave credit, and new employee retention credit. This will increase the cash available to businesses in the coming months. It appears these credits may also be refundable, meaning you can get cash back from the IRS for certain payroll taxes already paid.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

    Read more

    The Cash Flow Checklist: Actions Your Board Can Take to Protect Against Shortages

    The novel coronavirus, COVID-19, has definitely shaken things up in the cooperative and condominium industry. With all non-essential businesses shutting down and the added sense that we have no idea how long this will continue, funds are running low and people are getting worried.

    While it is ultimately best to consult a trusted Certified Public Accountant to help you navigate your way forward, The Cash Flow Checklist outlines ways you can prepare for disruptions to your property’s cash flow and significantly help you manage your property’s financial during these uncertain times.

    • Start with a monthly escrow for real estate taxes so you can pull that amount out each month.
    • Cease any reserve fund contributions.
    • Postpone capital improvement projects wherever possible.
    • Consider the option to draw down on existing line of credit facilities, but keep in mind that lenders may withdraw all or a portion of the available line in difficult times. Consider the effect on monthly costs of taking drawings.
    • Reach out to commercial tenants to best understand rent payments that they will be able to make.
    • Review unit owner listings and contact those who you feel might have difficulty keeping up with usual monthly payments. Call on your fellow Board members, the superintendent and neighbors to help identify others.
    • It is not clear if cooperatives and condominiums can qualify for SBA Economic Injury Disaster Loans (EIDLS) as well as Paycheck Protection Program (PPP) Loans, however, existing lenders generally need to approve additional financing. Just in case, gathering the required information and being ready to apply once final guidance is received would be prudent.
    • Condominiums without existing debt can consider obtaining new debt secured by working capital. Refinancing existing debt may make sense although consider upfront costs and early payment penalties and the anticipated lag of at least 90 days from initiation to closing.
    • Reach out the NYC Water Board to see if they have any programs available to defer payment without interest.
    • Inform vendors that payments will only be able to be made as funds are available.
    • Suspend reimbursement for abatements and Senior Citizens Rent Increase Exemption (SCRIEs).
    • Resist covering a deficit by increasing monthly charges or imposing an additional assessment, options that are likely increase the financial stress already placed on residents.
    • Avoid the courts at all cost. Neighbors who for years may have dutifully paid their monthly charges deserve better.

    Should cash become tight:

    Consider borrowing money from reserves to operations with appropriate documentation in the minutes of board meetings and include a clear plan to replenish those reserves.

    Contact the mortgage holder and request forbearance for at least 90 days.  

    Prioritize bill payment as follows:

    – Payroll

    – Fuel oil

    – Supplies/Repairs

    – Insurance

    – Office expenses

    Seek deferral acknowledgements for:

    – Mortgage (focus on interest only)

    – Gas/Electric

    – Real Estate Taxes

    – Water and Sewer

    Pay as best as possible:

    – Professional fees

    – Management Fee

    – Corporate Taxes

    Consider temporally using security deposits held against monthly charges for buyers who did not meet the board’s requirements at purchase.

    The Czarnowski & Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. If you’re interested in reading our full summary of the provisions outlined for coops and condos in the Act, download our guide here.

    Read more
    Scroll Up