6. Notes Payable
We entered into a Loan, Security and Guaranty Agreement (the “Citizens Loan Agreement”), dated as of February 24, 2017, with Citizens Bank, National Association as a lender, and as administrative agent, collateral agent, and issuing bank, which provides for an asset-based revolving credit facility (the “ABL Facility”) of up to $20 million.
Each loan under the ABL Facility bears interest, at our option, at either the Base Rate, as defined in the Citizens Loan Agreement, plus a margin ranging from 1.0% to 1.5% (4.50% as of June 30, 2020), or the LIBOR lending rate for the interest period in effect, plus a margin ranging from 2.0% to 2.5% (no borrowings at June 30, 2020). The maturity date of the ABL Facility is February 24, 2022.
LIBOR is expected to be discontinued after 2021. The ABL Facility provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. However, there can be no assurances as to whether such replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and will work with Citizens Bank, National Association to ensure any transition away from LIBOR will have minimal impact on our financial condition. We however can provide no assurances regarding the impact of the discontinuation of LIBOR on the interest rate that we would be required to pay or on our financial condition.
The ABL Facility contains certain specific financial covenants regarding a minimum liquidity requirement and a minimum fixed charge coverage ratio. In addition, the ABL Facility contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, mergers and acquisitions, and other matters customarily restricted in such agreements.
The amount of interest expense related to borrowings for the three months ended June 30, 2020 and 2019 was $63,605 and $90,035, respectively. The amount of interest expense related to borrowings for the six months ended June 30, 2020 and 2019 was $123,081 and $176,777, respectively. Debt issuance cost of $469,507 is being amortized to interest expense over the term of the ABL Facility. As of June 30, 2020, the unamortized portion of the debt issuance costs was $156,502. The amount of interest expense related to the amortization of the discount on the ABL Facility for the six months ended June 30, 2020 and 2019 was $46,951 in both periods. As of June 30, 2020, the ABL Facility borrowing base availability was $9,485,000, of which $3,949,070 principal was outstanding. The outstanding liability as of June 30, 2020 was $3,792,568, net of unamortized debt issuance cost of $156,502.
As a result of the uncertainty surrounding the COVID-19 pandemic and its impact on our operating results, we applied for and, on May 5, 2020, we received loan proceeds of $1.4 million under the Paycheck Protection Program (“PPP”) under a promissory note from BMO Harris Bank National Association (the “PPP Loan”). The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The PPP Loan has a two-year term and bears interest at an annual interest rate of 1%. Monthly principal and interest payments are deferred for six months, and the maturity date is April 30, 2022.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan and accrued interest. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, utilities, and retention of employees and maintaining salary levels. However, no assurance is provided that forgiveness for any portion of the PPP Loan will be obtained.
As of June 30, 2020, we have used $1.3 million of loan proceeds to fund eligible payroll, rent and utility expenses under the terms of the PPP Loan. As a result, we believe and expect that we will meet the PPP eligibility criteria for forgiveness and have concluded that the PPP Loan represents, in substance, funds provided under a government grant. As such, in accordance with IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance,” we have recognized the use of $1.3 million of the loan proceeds as of June 30, 2020 as Other Income. As of June 30, 2020, approximately $150,000 of the PPP Loan proceeds remained available to fund eligible expenses.
On August 5, 2020, we entered into a Loan, Security and Guaranty Agreement (the “BBVA Loan Agreement”), dated as of August 5, 2020 with BBVA USA, as a lender, and as administrative agent, collateral agent, and issuing bank, which provides for an asset-based revolving credit facility of up to $15.0 million and an equipment loan facility in the maximum principal amount of $2.0 million. The BBVA Loan Agreement replaced our Citizens Loan Agreement, which was paid off and terminated effective August 5, 2020. See Note 14 for additional details.