Small Business Rescue Loan Program Launches Friday

What's in the U.S. small business rescue program?

The Paycheck Protection Program, a key part of the $2.2 trillion package approved by Congress last Friday, provides funds to businesses that have fewer than 500 employees. The aim is to help the companies keep paying their employees and their basic bills during the shutdowns, so that they are able to reopen quickly when public health allows. The loans will be forgiven if they are used mainly to cover employee salaries, but can also be used to cover some overhead.

Highlights of the program, detailed in a 31-page document here on Thursday evening, follow:

HOW MUCH CAN BE BORROWED

The program allows companies to borrow 2.5 times their average monthly payroll, up to $10 million, but neither firms nor lenders knew exactly how that would be calculated. The guidelines spell it out with examples.

WHAT CAN IT BE USED FOR

Borrowers must use 75% of the loan for payroll, the equivalent of eight weeks of pay. The idea is to make the program do what Congress intended, which was to preserve jobs. Other uses of so called “covered loans” include utilities and interest on other loans (though not principal payments), as well as health insurance and rent. Loans used within these limits will be forgiven.

LOAN TERMS

Loan terms will be two years, shorter than the 10 years earlier anticipated that Treasury said is consistent with expectations the crisis will pass. The interest rate is set at 1%, well above the 0.23% yield on the two-year Treasury note, helping provide “ample inducement” for lenders to participate, the guidelines said.

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As of Q4 2019, MVIS had a quarterly salary spend of $4.4M, or about $1.5M per month. With the Paycheck Protection Program, it would appear MVIS could borrow 2.5 times that monthly amount for a total value of $3.75M.

MVIS reported cash on hand of $5.8M as of December 31, 2019. If we assume it cost them the same $4.4M to get through Q1 with severance payments, that would reduce their cash balance to $1.4M as of April 1. With the sale of production assets to April 2017 customer netting $525k, that would bring their balance to $1.9M.

With a $3.75M forgivable loan for paying salaries from the Paycheck Protection Plan, that would bring the cash balance to $5.65M and potentially allow them to attempt to re-hire the valued employees who were let go in the recent downsizing.