On Thursday, the U.S. House approved a third Coronavirus relief package to further address the economic dislocation caused by the global pandemic. The Senate had passed the legislation on Tuesday and it is expected to be quickly signed by President Trump.
The $484 billion piece of legislation includes:
- $322 billion for the Paycheck Protection Program – Including $60 billion for a small lender set-aside
- $60 billion for the Emergency Industry Loan Program
- $75 billion for hospitals
- $25 billion for virus testing
The additional $322 billion for the Paycheck Protection Program (PPP) adds to the $349 billion previously allocated in the CARES Act. The new money seeks to address the funding shortfall that left the PPP coffers empty last week before a large number of small businesses received loans. Large companies, that had pre-existing relationships with banks and teams of lawyers and accountants at the ready, were quickly able to access the limited PPP funding, at the expense of “mom and pop” small businesses. The situation has caused continued economic distress and a political uproar, as those smaller businesses, considered by many to be the backbone of our nation, were unable to secure the desperately needed financial lifeline.
The PPP will work the same as previously, providing loans that are potentially 100% forgivable if used for payment and other basic expenses such as rent, mortgage or utilities, in the 8-week period following loan funding. It is worth noting that while these loans have been highly attractive because they could be completely forgiven, some financial advisors are urging care spending down all of the funding in that it is possible that the lender could later decide that not all of the spending complied with the forgiveness requirements and that it may be important for some small businesses to maintain cash on hand to meet future needs. The PPP loans carry only 1% interest and repayment is deferred for six months. Companies are advised to confer with their accountants and financial planners regarding cash flow and financial needs.
The new legislation set aside $60 billion for community-based lenders, small banks and credit unions. The intent is to assist businesses, shut out of the first round of funding, that do not have relationships with big banks.
It is anticipated that due to the enormous number of businesses that are still in need of assistance, this new round of funding will quickly be disbursed, perhaps in as little as 24 hours.
The bill also contains an additional $60 million for the Economic Industry Disaster Loan (EIDL) program. The EIDL is a U.S. Small Business Administration disaster loan program that is available in states that are declared disaster areas, usually as a result of natural disasters such as hurricanes and earthquakes. In response the global pandemic, for the first time in history, all 50 states have been declared disaster areas at the same time. These loans are available for up to $2 million at a 3.75% interest rate. EIDL applicants who have less than 500 employees are eligible for a one-time $10,000 federal grant for immediate relief for payroll, rent and mortgage. Grant recipients can also receive PPP loans but up to $10,000 will be deducted from the forgivable portion of the PPP loan.
Congress is already in negotiations on a fourth coronavirus relief bill as the legislation passed on Thursday did not address shortfalls being faced by state and local governments. Also, as businesses in some of the harder hit areas may remain shuttered for longer than the eight-week time frame anticipated by the PPP, further assistance may need to be contemplated.