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 March 31, 2020), or the LIBOR lending rate for the interest period in effect, plus a margin ranging from 2.0% to 2.5% (3.89% as of March 31, 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 March 31, 2020 and 2019 was $60,845 and $86,742, respectively. Debt issuance cost of $469,507 is being amortized to interest expense over the term of the ABL Facility. As of March 31, 2020, the unamortized portion of the debt issuance costs was $179,978. The amount of interest expense related to the amortization of the discount on the ABL Facility for the three months ended March 31, 2020 and 2019 was $23,475. As of March 31, 2020, the ABL Facility borrowing base availability was $11,221,000, of which $4,733,003 principal was outstanding. The outstanding liability as of March 31, 2020 was $4,553,025, net of unamortized debt issuance cost of $179,978.
As a result of the uncertainty surrounding the COVID-19 pandemic and its impact on our operating results, which cannot be reasonably estimated at this time, 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 granted under the PPP. 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, and utilities. However, no assurance is provided that forgiveness for any portion of the PPP Loan will be obtained.