How Does an Unforgiven PPP Loan Affect My Bonding Capacity?
Brent Headley, Surety Account Executive at Anderson & Catania Surety Services LLC, offers insight regarding PPP loans and their impact on surety bond capacity.
Why Is It Important to
Anticipate How a Surety Will Treat an Unforgiven PPP Loan?
Obviously, if the PPP loan is unforgiven, the loan amount affects how the surety calculates the working capital of the company and of course the equity. If the contractor has the manpower capacity to handle additional work, the PPP loan should help to increase their overall work program that the surety company would allow.
Are Your Contractors Experiencing Any Delays or Obstacles in the PPP Loan Forgiveness Process?
My contractors appear to be treating PPP loan forgiveness as business-as-usual, anticipating that the PPP loan will be forgiven. If not forgiven, PPP loan proceeds are practically free money to be used to support their business when you consider the interest rate being charged by the government.
First of all, there are a significant number of surety companies within the industry. And they all seem to have their own way of underwriting the PPP money.
Some will count it as a 100% long-term liability. Some will count it as 50 percent current, 50 percent long-term. And I have a couple of markets that will consider it as 80 percent current and 20 percent long-term.
It purely depends on the surety company that’s underwriting the risk.
The other factor is how the PPP is handled by the CPA. We’re finding that the CPA themselves will mix it between current and long-term depending on the risk or the contractor that they’re providing financial statements for.