Acme United Does NOT Have to Pay $3.5 Million PPP Loan Back
Acme United (US: ACU – $43.61) received very good news from the Small Business Administration (SBA), as the U.S. government agency confirmed that it forgave the $3.508,047 Paycheck Protection Program (PPP) loan that Acme received last year.
Moreover, ordinarily, loan forgiveness is considered a taxable income, but forgiveness of a PPP loan is not considered a taxable income. Consequently, the amount will go straight to the Company’s bottom line in the second quarter.
Walter Johnsen, Chairman and CEO commented, “Acme United encountered numerous business and operational uncertainties resulting from the COVID-19 pandemic. The PPP loan was a key factor in enabling Acme United to successfully meet the significant challenges that resulted from these uncertainties, including our ability to avoid laying off any of our employees during the pandemic.”
Paycheck Protection Program
The PPP is a $953-billion business loan program established by the United States federal government in 2020 through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help businesses continue paying their workers.
The PPP allows entities to apply for low-interest private loans to pay for their payroll and certain other costs. The amount of a PPP loan is approximately equal to 2.5 times the applicant’s average monthly payroll costs, but depend on different factors. PPP loans carry an interest rate of 1% and typically have a maturity of two years.
In some cases, an applicant may receive a second draw typically equal to the first. The loan proceeds may be used to cover payroll costs, rent, interest, and utilities. The loan may be partially or fully forgiven if the business keeps its employee counts and employee wages stable. The program is implemented by the U.S. Small Business Administration.
This is exactly what happened at Acme United. The Company applied for the PPP loan through HSBC, Acme’s banking partner. HSBC subsequently reviewed that application for compliance and then sent it to the SBA, which then approved the loan. HSBC finally provided the $3.5 million loan to Acme at a 1% interest, which SBA guaranteed.
In other news, the Company also declared a cash dividend of 13 cents per share on its outstanding common stock, payable to stockholders of record on the close of business on July 2, 2021.
Acme United‘s strong financials make it possible for it to continue paying its attractive quarterly dividend. Traditionally the Company increases the amount by 1 cent every 6 to 8 quarters. In fact, Acme increased its dividend from 12 to 13 cents late 2020.
Mr. Johnsen said at the time, “This is Acme United’s twelfth dividend increase since 2004. The Company continues to make good business progress and we are delighted to provide this additional return to shareholders. Our balance sheet is strong and we are confident in the business.”
This is excellent news for Acme United and its shareholders. Obviously, the PPP loan forgiveness is a one-time event and the proceeds will only show up in this year’s second quarter financials. Still it’s way better to be able to keep the $3.5 million than to give it back. The funds may, for example, be used to reduce the Company’s debt, which in its turn provides more opportunities for future acquisitions.
The Company is optimistic about the rest of 2021 and beyond. So it will be exciting to see what the second quarter financials will look like when they are presented mid-July. Smallcaps Recommendation: BUY.
|Smallcaps.us Advice: Buy
|Price Target: $54.84
|Latest Company Report (pdf)
|For important disclosures, please read our disclaimer.