Never has so much been given with so little information or effort…as part of the CARES Act, Congress has enabled the SBA to issue 100% federally guaranteed loans to businesses and entities in operation on February 15, 2020. These loans have been given to small business concerns, non-profits, individuals operating as sole proprietorships, eligible self-employed individuals and Tribal concerns through participating banks with no credit risk to the banks.
Considering the enormity of the project and related processes, the SBA has done and continues to do an outstanding job of working with the participating banks in establishing the processes for determining and getting the money in the bank account(s) of literally millions of companies under what is being called the PPP (Paycheck Protection Program). The maximum loan is the average monthly payroll costs incurred during the 12-month pre-funding period multiplied by 2.5 (250%). The maximum loan is around $10 million. The terms and conditions are historically unheard of for government loans (grants):
- NO GUARANTEE – No personal guarantee required.
- NO COLLATERAL REQUIREMENT NON-RECOURSE – The SBA has no recourse against any individual shareholder.
- NO FEES – The SBA will not collect a fee from the recipient of the loan.
- COMPLETE PAYMENT DEFERMENT RELIEF of principal, interest and fees for a period of not less than 6 months and not more than a year.
- FOR AMOUNTS NOT FORGIVEN, the maximum loan term in 10 years, the maximum rate is 4%, zero loan fees and no prepayment fees.
Based on the rate in which the economy seems to be rebounding, the PPP has served us all very well.
Joint Ventures have been an extremely collaborative approach to undertaking and completing the tremendous amount of road and highway (FDOT) work that has been done in Florida over the past 25+ years. The size and complexity of many of the projects has required the joint efforts of two or more construction firms. A few examples would be I-4 in Orlando, a tri-venture; the 826/836 Interchange in Miami-Dade County, a tri-venture, and of course the 395 Signature Bridge contract in Miami-Dade County, a joint venture.
In some cases, contracting entities have joined forces to spread the financial risk or the various parties may come together for organization, technical or manpower advantages. Whatever the reasons for the various contracting entities uniting, the success of the projects completed under this contracting method is indisputable. It is likely that we will continue to see an escalation of joint venture work in our marketplace over the next decade as projects continue to grow in size and complexity.
COVID-19 has significantly impacted all credit markets, both directly and indirectly, including the Surety Credit marketplace. Based principally on supply chain issues, employee availability and productivity as well as bank credit availability, surety markets are re-evaluating the credit they have been willing to extend – both on a general and specific account basis.
The underwriting criteria and understanding between a contractor and their surety may have been quite predictable in the past; however, our financial world has radically changed and at this point in time, nothing in that regard can just be assumed any longer or taken for granted.
In these challenging times it more important than ever to have a “backup surety lines of credit” for any account that depends on surety credit as a means of obtaining work. Now, like no other time in history, has a backup line of surety credit made more business sense.
Talk with a surety bond specialists or financial advisor to learn more about how they, can help you navigate the uncertainties of the novel coronavirus and discuss the best way to secure a backup line of surety credit for your business.