CARES Act stimulus for small businesses
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136 (H.R. 748)) was signed into law in the US in response to the 2019 novel coronavirus disease (COVID-19) pandemic.
The CARES Act provides financial relief to individuals and businesses facing economic hardship due to the COVID-19 outbreak. It made temporary changes to two significant loan programs administered by the Small Business Administration (SBA) during the COVID-19 pandemic:
- Paycheck Protection Program (PPP)
The PPP is designed to encourage small businesses to retain employees through the COVID-19 crisis. It extends the SBA's 7(a) loan program to provide up to $659 billion in partial or fully forgivable loans to eligible small businesses to cover payroll and certain other operational costs from February 15, 2020 through December 31, 2020. Loans up to 2.5x the borrower's average monthly payroll will be forgiven if at least 60% of the loan is used to pay payroll costs, and not more than 40% of the loan is used to pay mortgage interest, rent, or utilities during the 24 weeks after the loan is made.
Current law dictates that the Paycheck Protection Program (PPP) close at the end of August 8, 2020. As such, the SBA is no longer accepting PPP applications from participating lenders.
- The Economic Injury Disaster Loan (EIDL)
The EIDL provides working capital loans to small businesses suffering substantial economic injury from the COVID-19 crisis. It will provide low interest loans to small businesses to pay payroll and certain operating costs and liabilities from January 31, 2020 through December 31, 2020. Loans are available up to $2 million, based on the borrower's actual economic injury and financial need, and are not forgivable. The EIDL Program also provides up to $20 billion for $10,000 emergency economic injury grants (EEIG) advances which do not have to be repaid.
On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act (PPPHCE Act) (Pub. L. No. 116-139 (H.R. 266)) was enacted to increase funding under the CARES Act. This added $310 billion for PPP loans, $50 billion for EIDLs, and $10 billion for EEIGs.
On June 8, 2020, the Paycheck Protection Program Flexibility Act of 2020 (PPPF Act) was enacted to give more time and flexibility to small businesses to retain their employees and ensure their continued operations as the country slowly reopens amidst the COVID-19 crisis.
The CARES Act also authorized the Federal Reserve to establish a "Main Street Lending Program" to support lending to small and medium-sized businesses that were in good financial standing before the COVID-19 outbreak. The Federal Reserve announced three Main Street lending facilities:
- Main Street New Loan Facility (New Loan Facility). Eligible borrowers may apply for five-year loans of up to $35 million.
- Main Street Expanded Loan Facility (Expanded Loan Facility). Eligible borrowers may apply to increase the amounts of their existing loans or lines of credit up to $300 million.
- Main Street Priority Loan Facility (Priority Loan Facility) is a hybrid of the New Loan Facility and the Expanded Loan Facility. Eligible borrowers may apply for five-year loans of up to $50 million.
Last Updated: 8/10/2020
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