The CARES Act provides $350 billion for small business Paycheck Protection Loans and an additional $10 billion for the existing Economic Injury Disaster Loan program.
On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act. This is the fourth piece of legislation approved by the President and Congress since March 1 to address the COVID-19 pandemic and associated economic fallout. Most notably, the Act provides critical new funding for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), which exhausted its original CARES Act appropriation within days of program implementation.
New Boost for SBA Lending
The Act amends the two major relief programs for small and medium businesses, the PPP and the Economic Injury Disaster Loan (EIDL) program.
The original PPP authorized $349 billion to guarantee loans to businesses with no more than 500 employees to cover certain costs such as payroll, health care, employee compensation, interest on mortgages, rent, utilities, and interest on debt obligations. We summarized its provisions here. The Act increases funding for the Paycheck Protection Program from $349 billion to $659 billion.
The Act also increases funding for EIDL grants from $10 billion to $20 billion.
In addition to increasing the amount of funding, the Act expands access to funds by making clear that agricultural enterprises of not more than 500 employees are eligible to receive EIDL loans and grants.
In addition, the Act requires the SBA to guarantee at least $30 billion in EIDL loans will be distributed through: 1) insured depository institutions and credit unions with consolidated assets of at least $10 billion and less than $50 billion; 2) community financial institutions; and 3) insured depository institutions and credit unions with consolidated assets of less than $10 billion.
With these changes, the lenders will now be able to issue new SBA loans, in particular reopening the temporarily shut-down PPP loan process.
Additional Assistance for Combatting COVID-19
The Act provides an addition $75 billion in support for hospitals dealing with COVID-19-related expenses. The Act also authorizes $25 billion for the “Public Health and Social Services Emergency Fund” to “prevent, prepare for, and respond to coronavirus.” At least $11 billion of this $25 billion must be for necessary expenses to develop, purchase, administer, process, and analyze COVID-19 testing.
Of note, the $25 billion authorized by the Act for preventing, preparing for, and responding to coronavirus may be spent on “construction, alteration, renovation, or equipping of non-federally owned facilities to improve preparedness and response capability at the State and local level for diagnostic, serologic, or other COVID-19 tests.”
As a result, the construction industry may see an increase in state and local government contracts to renovate buildings to increase preparedness and responsiveness to coronavirus.
For more information, please reach out to your regular Pillsbury contact or the authors of this client alert.
Pillsbury’s experienced multidisciplinary COVID-19 Task Force is closely monitoring the global threat of COVID-19 and providing real-time advice across industry sectors, drawing on the firm’s capabilities in crisis management, employment law, insurance recovery, real estate, supply chain management, cybersecurity, corporate and contracts law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.