CARES Act update for contractors and developers
ON APRIL 24, President Donald Trump signed into law significant changes to the Coronavirus Aid, Relief and Economic Security Act, commonly known as the CARES Act. The act originally included $349 billion for small-business loans to employers with fewer than 500 employees.
These loans were part of the Paycheck Protection Program or PPP. Individual businesses can borrow up to $10 million to cover the costs of payroll and some rent and utility expenses through June 30. The loans do not require personal guaranties and may be forgiven, meaning the principal amount may not have to be paid back under certain circumstances.
The original fund was exhausted in about two weeks. The data is still being collected, but so far about 8,600 loans were made in Nevada totaling slightly more than $2 billion. No specific data is available for Nevada yet, but nationwide about 13 percent of the loans by dollar amount went to the construction industry, for a total of about $44 billion in loans. That figure may also include developers. However, the initial reports are not that specific. The initial data does not indicate how many loans were made to Nevada-based contractors and developers. Overall, construction was one of the top four industry segments to receive loans.
The amendment that President Trump signed into law accomplishes a number of objectives, including replenishing the funds for the PPP. The amendment makes an additional $310 billion available for loans.
One issue that affects the amount a person may borrow is how related business entities are counted. Remember, the total amount for each borrower is limited to $10 million, andtheamendmentdidnotchange that. Developers frequently organize each project as a separate business entity such as a limited liability company. The question is whether each entity is entitled to its own loan of up to $10 million, or are they counted as a single-business organization. Even though a developer will typically create a separate limited liability company for a project, those companies typically have the same people managing them, have similar ownership and their tax reporting is consolidated up into the tax return for a parent entity.
When the PPP rolled out a few weeks ago, there was little guidance as to how to treat these affiliated companies. The SBA has since issued complex rules for analyzing this question, and developers should consult with their lending financial institution and an attorney to determine how the rules apply to their particular situation.
Contractors who are sole proprietorships or independent contractors should not forget that they too can apply for loans under the PPP.
Another program that small contractors can take is the SBA’S Economic Injury Disaster Relief Program, also known as the EIDL. Through the EIDL, the SBA is offering a loan advance or grant of up to $10,000 to small businesses. This grant does not have to be paid back. Like the PPP, the EIDL grant program ran out of money. However, theamendmenttothecaresact adds another $10 billion of available funding.
Unlike the PPP, where businesses apply through a bank or other financial institution, a business applies directly to the SBA for the EIDL grant. These grants can be particularly helpful for small contractors and specific trades.
John M. Naylor is a partner at the Las Vegas law firm of Naylor & Braster at 1050 Indigo Drive, Suite 200, 702-420-7998. He is a former judge advocate with the United States Air Force and currently practices business law and business litigation. the neighborhood park — are now prized. If things as commonplace as these are now gone, how do you run a business during so much turmoil? Let’s take a look at the mortgage business.
A mortgage loan by definition is used either by purchasers of real property to buy real estate, or alternatively by existing property owners to raise funds for any purpose by placing a lien on their home. The loan is secured on the borrower’s property putting into place a legal mechanism that allows the lender to take possession and to sell the property in the event that the borrower defaults.
The word “mortgage” is derived from an old French law word meaning “death pledge.” Meaning that the obligation is fulfilled by the loan being paid off, or by the property being taken in a foreclosure action and subsequently sold.
If you analyze the above paragraph, it’s pretty easy to see that lenders are looking for repayment through one of two sources – from you or from your house, which is their collateral. When a lender looks at you for repayment, it analyzes your income, assets and credit. Is your income stable? Is your income increasing or decreasing — and why? What is the probability of your income continuing at its present amount? And what is your probability of continued employment?
Lenders look at your liquid assets in your bank accounts and your retirement assets in 401(k)s and IRAS. And they look at the all important credit report, because in today’s digital age it is used as an accurate predictor of your intent to repay your mortgage with timely payments. When a lender looks at your house as a source of recovering their loan, it obtains an appraisal that defines the current value of your home.
Fast forward to today — and imagine operating a mortgage company in these uncertain times. How do you determine probability of continued employment? Is your income going to stay the same? And, if your home’s current value is set as of today, what is that value going to be in three months from now, or six months, or in a year? It’s pretty easy to see that these are tough times for underwriters at mortgage companies.
If you’re considering purchasing a home or refinancing, all of this probably sounds all too familiar to you. But my advice is: Do not give the past the power to define your future. This too shall pass.
It is more difficult to get a home loan during this crisis — but it’s not impossible. The mortgage industry is one that is incredibly well-adapted to the social distancing era. Virtually, your entire loan process can be done electronically. And the escrow and title companies also have adapted with electronic signatures and mobile notaries.
If you’re considering purchasing a home, I would recommend to do that. Supply and demand will determine future values. If you have thought about refinancing — do it now! Interest rates are at historic lows, and you can either reduce your monthly payment or pull out some cash for needed expenses.
My advice is to contact a reputable and well-known lender. Then determine the loan officer that’s the right fit for you. He or she will walk you through the maze of issues that you will need to navigate and when the pandemic passes, which it will, you will be set to embrace the world of tomorrow.
Rick Piette is the regional sales manager for All Western Mortgage. He has been a Las Vegas resident and mortgage expert for many years. Contact him at rickp@allwestern.com.