Loan Options for Construction Firms During the Coronavirus Outbreak

Topics: construction administration, coronavirus, construction loan, covid-19, construction finance

Michael Tobias
Author : Michael Tobias on June 29, 2020

Working from home is an excellent option for companies to continue operating during the coronavirus emergency. However, not all sectors can operate remotely, and this includes construction. Building projects can be designed, planned and approved with remote collaboration. However, the actual construction process requires the presence of contractors in project sites.


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The COVID-19 prevention guidelines have varied by state, but most contractors have dealt with project disruption and unexpected costs. In addition, some project owners have fallen behind on payments, while construction firms must still cover fixed costs like payroll. To mitigate this issue and keep the construction industry moving, the federal government has introduced measures such as the Paycheck Protection Program (PPP).

What Is the Paycheck Protection Program?

The PPP is part of the Coronavirus Aid, Relief and Economic Security Act (CARES) passed by the US Congress. 

  • The program offers business loans at 1% interest, with a repayment period of five years. 
  • These loans are forgivable if at least 60% of the funds are used to cover payroll.
  • The loan must be spent within 24 weeks, once the funds are available. The original requirement was 8 weeks, but it was extended.
  • As of June 20, over 4.6 million loans  had been approved under the PPP.

The construction industry has been a major user of PPP loans, with 13.2% of the total funds approved as of April 2020. At first there was skepticism, since the program rules were not clear, and companies were afraid of legal action for not meeting the minimum payroll percentage. The rules were then clarified in June, indicating that there is only a financial responsibility. The minimum loan amount used for payroll was also reduced from 75% to 60%, while the term was extended from 2 to 5 years.

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PPP loans up to $2 million must only be approved, and they are then deemed automatically. On the other hand, loans above $2 million are audited, to ensure that at least 60% was used for payroll. As mentioned before, failing the audit only means having to pay back the loan, and there are no legal consequences.

US Federal Reserve Main Street Lending Program

The US Federal Reserve launched a similar program in response to COVID-19, which is intended for larger companies, called the Main Street Lending Program. To be eligible, the applicant must meet the following conditions:

  • Established before March 13, 2020.
  • Up to 15,000 employees
  • 2019 revenue up to $5 billion
  • Created in the US or subject to US law, with significant operations and most of its workforce located in the US
  • Has not received support through the Payroll Protection Program (PPP), or other benefits from the CARES Act

The Main Street Lending Program offers three main types of loans: New Loan Facility (MSNLF), Priority Loan Facility (MSPLF) and Expanded Loan Facility (MSELF). These loans are mutually exclusive, which means that organizations can only apply for one type. The following table summarizes the main conditions for each type:

Loan Type

Minimum Amount

Maximum Amount (Lesser of...)

MSNLF

$250,000

$35 million or 4x the 2019 EBITDA

MSPLF

$250,000

$50 million or 6x the 2019 EBITDA

MSELF

$10,000,000

$300 million or 6x the 2019 EBITDA

All these loans have a 5-year maturity, with principal payments deferred for two years and interest payments deferred for one year. They have an adjustable rate of LIBOR (London Interbank Offered Rate) + 300 basis points. The principal amortization is 15% at the end of years 4 and 5, and 70% at the end of year 5, and prepayment is allowed without penalty.

Additional Debt Relief and Tax Relief for Organizations

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In addition to the PPP and Main Street Lending Program, there are additional benefits to help companies through the COVID-19 emergency.

  • In the case of loans, the Small Business Administration (SBA) will be covering principal payments, interest and other fees for several types of loans. These include the SBA 7(a) general lending program, 504 loans for fixed assets, and microloans.
  • The CARES provides tax relief using credits and deferrals. For example, there is a 50% employee retention credit, which is claimed against employment taxes, up to $5000 per employee.

To complement loan relief and tax relief benefits, the federal government is waiving several regulations that normally slow down projects. By reducing bureaucracy and paperwork, this is intended to mitigate the impact of COVID-19 on the construction sector.

Developers and construction companies can also speed up projects with remote collaboration, which can be used for the entire pre-construction stage. Getting a project designed and approved with zero physical meetings is now possible, thanks to modern engineering software and team collaboration tools.

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