It is our mission at Patrick Neale & Associates to provide support and information to the community in these difficult times. You are no doubt hearing news reports about COVID-19 relief programs for individuals and businesses. Some of these programs are set. Others are being legislated and are not finalized yet. Until signed by the President, we won’t know for sure what they will be. As always, feel free to contact our office before signing any loan or other legal documents.
The programs that are currently in existence are:
1. Florida Small Business Emergency Bridge Loan Program https://floridadisasterloan.org/
This program has been in place since 1992 and is designed to provide short term cash flow to businesses with 2-100 employees. The maximum loan amount per business is $50,000, however, under special circumstance is may be as much as $100,000. These loans are designed to act as a bridge to longer term financing or receipt of insurance proceeds. The loans are administered by the Florida Department of Economic Opportunity (DEO) in partnership with the Florida SBDC and Florida First Capital Finance Corporation. The loans have a term of one year and are interest-free during that term. Their primary purpose is to provide bridge financing until the business either receives payment for an insurance claim or can refinance the loan. The loan application requires the applicants to certify that they will repay the loan in one of four ways; they have applied for an SBA disaster loan (see below) or other federal assistance, they are applying for have applied for a loan with their bank, they have filed an insurance claim or they have other resources to repay the loan. They are not long-term revolving lines of credit.
There are several caveats with these loans.
Cautions: At the end of one year, the full balance becomes due and begins accruing interest at the rate of 12% per annum. The application states in bold letters that, any loan not repaid in full on or before the maturity date will be considered in default and may be assigned to a collection agency. These loans are also personally guaranteed by the borrowers. This kind of financing is not advisable for a business that does not anticipate receipt of funds to pay it off at or before the end of the one-year term.
2. SBA Economic Injury Disaster Loan https://www.sba.gov/disaster-assistance/coronavirus-covid-19
The Small Business Administration (SBA) is offering low interest (3.57% for profit businesses, 2.75% for non-profit businesses) loans up to $2 million. These loans have flexible repayment periods of up to 30 years. SBA loans also require personal guarantees. These may be a better alternative than the state loans for many businesses in the long term or can be used in conjunction with the state Bridge loan.
Caution: SBA loans also require personal guarantees.
3. Mortgage Relief Programs
Fannie Mae and Freddie Mac, the largest mortgage guarantee organizations in the US representing almost 70% of the outstanding home mortgages. They both are offering relief to borrowers impacted by COVID-19. The programs, generally, are likely to be followed by other mortgage servicers and lenders.
Freddie Mac’s relief package includes:
- Providing mortgage forbearance for up to 12 months
- Waiving assessments of penalties and late fees
- Halting all foreclosure sales and evictions of borrowers living in Freddie Mac-owned homes until at least May 17, 2020
- Suspending reporting to credit bureaus of delinquency related to forbearance
- Offering loan modification options that lower payments or keep payments the same after the forbearance period
Fannie Mae’s package is very similar and includes:
- Foreclosure sales and evictions of borrowers are suspended for 60 days
- Homeowners impacted by this national emergency are eligible for a forbearance plan to reduce or suspend their mortgage payments for up to 12 months
- Credit bureau reporting of past due payments of borrowers in a forbearance plan as a result of hardships attributable to this national emergency is suspended
- Homeowners in a forbearance plan will not incur late fees
- After forbearance, a servicer must work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification
Caution: As with any fluid situation such as COVID-19, the details are still being worked out. The details that could be pitfalls down the road is how the payments that were not made in the forbearance period are repaid. In the past, they were generally either tacked onto the end of the loan or amortized over the term of the loan. However, some lenders demanded very short repayment periods which were often impossible for the borrowers to comply with. It is unclear at this time whether this relief will stop lenders from filing new foreclosure cases. It does not apply to renters.
Again, feel free to contact our office with questions about this or other concerns you may have.
Terms:
Forbearance: Under forbearance, your loan payments are postponed (or reduced) but interest continues to accrue during the period of forbearance. You generally will be required to make up the payments missed during the forbearance period.
Personal Guarantee: A personal guarantee is an individual's legal promise to repay credit issued to a business for which they serve as an executive or partner. Providing a personal guarantee means that if the business becomes unable to repay debt then the individual is personally responsible.
The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Patrick Neale & Associates. The reader should not act or refrain from acting based upon the information contained in this article without first contacting an attorney. The hiring of an attorney is a decision that should not be based solely upon advertisements or this article.