The Federal Reserve has established a Main Street Lending Program to support small and medium sized businesses who have been adversely affected by the Covid-19 pandemic. The purpose of the program is to support and provide liquidity to businesses that are still in need after The PPP Forgivable Loan and other stimulus packages.
In prior communications, I have spoken about what usually happens in a recessionary or depressionary economy. Businesses are adversely affected and cannot pay their loans. When a loan goes bad, it goes from being an asset on the bank’s balance sheet to a liability. Banks are required to maintain certain liquidity ratios, depending on their loan portfolio. If they become illiquid, The FDIC comes in and takes the bank from current ownership, selling it to another bank that can add the liquidity necessary for the bank’s current depositors to remain safe.
If you owned a bank in these troubling times, what would you do in order to not lose your bank? You would stop lending. You would hang on to every dollar that you could because you are going to need them to cover the bad loans.
The Federal Reserve is simply injecting liquidity into the capital markets in order to try to get the economy rolling again. Jobs are usually not created by big businesses, they are created by us, the small business owners. As such, anything that The Reserve can do to help us, is what is necessary to stop the draconian effects of these stay at home orders.
The Federal Reserve will not actually be doing any lending. This program is designed to take the risk out of lending for the banks that are already feeling the pinch of a bad economy. The Reserve will be buying back 95% of the loans that are offered in this program to remove risk. Additional terms of this program are as follows…
1 – This is not a Forgivable Loan. It is a regular, full recourse loan program that will need to be guaranteed.
2 – Loan amounts range from $500K to $200M.
3 – This program will be in effect until September 30, 2020, unless it is extended by The Fed.
4 – In order for a borrower to be eligible it must
a – Have been established prior to March 13, 2020
b – Have fewer than 15,000 employees and less than $5B in revenues
c – Be a US based business
d – The Borrower can participate if they have received a PPP Loan
e – The Borrower must have been a healthy and solid business prior to the pandemic
f – Payments of principal and interest are not required for the first 12 months
g – These loans may be secured or unsecured, depending on individual circumstances
h – These loans are available through any banking institution.
Additional information about these programs can be found at
https://www.federalreserve.gov/monetarypolicy/files/main-street-lending-faqs.pdf
Let me leave you with this one thought…
We operate businesses in extremely trying times. You may have heard that Governor Pritzker had made it a Class A Misdemeanor for businesses that did not obey his closure rules. Business owners faced up to a year in jail for not adhering to these oppressive mandates.
His own family hasn’t obeyed him by vacationing in Florida and Wisconsin during this pandemic, but we could have gone to jail for opening and simply doing business. Yesterday, his office withdrew this controversial decree. He also said that beginning May 29th, bars and restaurants could reopen their outdoor patios.
The problem with all of this is that businesses cannot be expected to stay open with these regulations in place.
A hair salon cannot survive if it can only handle one or two customers at a time. A retailer can’t stay open doing curbside business only. The internet has already just about killed them. What more can they be expected to take? Restaurants already operate on razor thin margins. After being shut down for almost two months, how can they be expected to pay their bills if they are restricted to ten or twenty percent of their normal capacities?
This lock down was only supposed to last until we flattened the curve. Now it will go on until they find a vaccine. And when is that going to happen? This year? Maybe next year? Maybe not at all.
The unemployment rate is almost 20%. The government can’t continue to print and hand out money. If they do we will have the rampant inflation of the late 1970’s. How long will people be guaranteed a $30,000 per year salary for sitting home and doing nothing? Everyone who had minimum wage workers is having nothing but trouble trying to hire them back. Meanwhile, back at the ranch, Chicago raised the minimum wage another $1 per hour, and put into effect its Fair Workweek and Paid Sick Leave Provisions.
What’s next? Locusts?
The most difficult part of all of this is maintaining your ability to make a reasonable decision. Keep your head straight. Use your common sense. Think about all of this in a rational manner.
This too shall pass. And we are here, right beside you, to help in any way that we can.
Accounting Solutions Ltd. stands ready to complete its mission and purpose of protecting you, your family, and your business. If there is anything that you need, anything at all, we stand ready to help. Whether you are a current client or not, give me a call. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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chris@accountingsolutionsltd.com
