Major League Baseball’s Opening Day would have been a week ago. But for many construction and other businesses, today’s opening day should provide an even fresher scent of hope. I’m talking about the Treasury Department’s first day of applications for the Paycheck Protection Program (PPP) - a $359 billion slice of the Federal Government's CARE Act, which is meant to help small businesses retain their employees and stay solvent during the coronavirus pandemic.
The PPP is the most significant, though not the first, form of support that E&C businesses have received from the public sector since this crisis began. Before CARE, the majority of city and state governments had also done their part - recognizing construction as an essential economic activity and keeping sites open. Sure, we’ve seen many projects stopped, or delayed due to supply disruptions or financing considerations. But outside of a few notable exceptions (NYC, the Bay Area, PA and MA) local governments have largely been hands-off. And it’s allowed thousands of people to keep working on active job sites, while beginning to add more oversight on job site safety.
What’s In The Program
Now comes the PPP. It’s a huge shot in the arm that provides federally-guaranteed loans to businesses with up to 500 employees, covering the vast majority of E&C companies. Loans are granted for up to 2.5 times monthly payroll expenses up to a max of $10 million. These loans are forgivable to the extent that businesses retain employee expenses over the eight weeks following receipt of the loan, and as long as 75% or more of the proceeds go towards comp.
Also, any non-forgiven portion of the loan is amortized at 1%. That's double the rate initially planned, until lenders complained about losing money on the rates. But that’s still borrower-friendly. What’s also nice is that the loans are administered through banks, which allows the money to get out more quickly than having to apply through the SBA.
The Other Fine Print
All that being said, I wouldn’t be surprised to see many cases of processing delays. Everyone and their mother will be applying at the same time. If you've recently tried refinancing your mortgage, you should expect a familiar experience. And there is still some lack of clarity among lenders on guidelines, which may cause further delays. In all likelihood, opening day, or even opening week, will not be pretty. But the application form is pretty simple, so at least that shouldn’t be a hold-up.
Here are the most active lenders under federally -guaranteed 7(b) loan programs, which include the PPP: https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders.
Where Next?
Any degree of hope taken from this stimulus largely depends on where he or she falls on the optimist/pessimist spectrum of this crisis. But while the length of this economic downturn remains uncertain, and the benefits from the stimulus may be temporary, it’s encouraging to see government focusing financial resources on retaining employees, as opposed to helping them only after they’re on the unemployment line. And Steve Mnuchin has shown a willingness to continue that support, possibly adding more funds to the PPP if the well runs dry.
Meanwhile, for E&C companies if talk of a follow-on infrastructure stimulus materializes down the line, E&C companies may have reason to continue holding down the fort and keep employees on board with further help from that investment. Whatever the next several months brings—a Q3 bounce-back, a long-term recession, or something in between—today should be a day of action: Evaluate any potential proceeds from a loan against the savings from near-term cuts to your expenses. Get your paperwork together. And if it makes sense, then play ball!
Russell Peachman works with construction companies at CPA firm, Sax LLP.
The opinions expressed are those of the author and do not necessarily reflect the views of Sax, LLP, or its clients