Last night, the U.S. Senate passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Passage in the U.S. House is expected by the end of the week. The act is 880 pages long and focused on the U.S. economy broadly and workers. It includes, among other things, loan programs for both small and large businesses, corporate and individual tax relief and enhanced unemployment insurance benefits. While this represents a positive step forward, we expect future packages to be debated and passed at the federal, state and municipal levels both during and after this crisis. Below is a summary of a few of these key provisions:
Small Business Paycheck Protection Program
The CARES Act includes a $325 billion small business loan program designed for businesses having fewer than 500 employees to be administered through the Small Business Administration (SBA). The maximum amount of the loan is the lesser of a multiple of 2.5x payroll or $10 million. Under certain conditions, there are aspects of the loan that qualify for forgiveness. The deadline to apply for the small business loan program is June 30, 2020, and details are expected to be issued soon and accessible at SBA.gov. Boxer has worked with Spirit of Texas Bank to assist our customers with this program as they are a very active SBA lender. You can also reach out directly to one of their Loan Officers
Large Business Loan Program and Credit Facility
A second loan program has been established for larger businesses that do not otherwise qualify for the small business offering. While the total value of this program is $500 billion, after the deduction for amounts directed to airlines and industries designated for national security, there is $425 billion available. It is expected that this amount will be leveraged significantly and potentially provide up to $4 trillion in financial support. Loans must be secured, for a term of not more than 5 years, and subject to an annualized interest rate that is not higher than 2 percent per annum. For the first six months after any direct loan is made, there is no principal or interest due or payable. That may be extended at the Treasury Secretary’s discretion. While the loan is outstanding, stock repurchases are prohibited by borrowers, who are also required to maintain existing employment to the extent practical and abide by limits imposed on executive compensation. The U.S. Treasury is working through the guidance and is required to publish procedures for applications and the minimum requirements within 10 days of the bill’s passage by the House.
Corporate Tax Provisions
There are a number of provisions providing corporate tax relief. These include extension of NOL carrybacks for five years, delay of employer payroll taxes, correction of qualified improvement property depreciation back to 15 years, employee retention credits, relaxation of business interest deductions and employee retention credits.
Individual Tax Relief
Recovery rebates of up to $1,200 for individuals (phase out beginning at $75,000 annual income) or $2,400 for married couples (phase out beginning at $150,000 annual income), each increased by $500 for every child.
Enhanced Unemployment Benefits
Unemployment benefits by adding a $600/week across‑the‑board payment increase through the end of July 2020. In addition, for those who need it, the bill provides an additional 13 weeks of benefits beyond what states typically allow. The expansion in unemployment benefits expires at the end of 2020 in recognition of the temporary nature of this challenge. Benefits should be accessible via a state’s unemployment insurance website.
The Federal Deposit Insurance Corp (FDIC) has provided expanded authority to guarantee bank accounts and ease lending regulations. The Act also allows banks to postpone compliance with the Current Expected Credit Losses standard and ease accounting rules to make it easier for banks to restructure Troubled Debt Ratio without taking a hit to capital and regulatory relief from accounting standards for loan modifications.
In addition to the CARES Act, the Federal Reserve has also taken extraordinary actions in reaction to the crisis. These include cutting the Federal Fund rate to 0%, implementing a Security Purchase Program (inclusive of CMBS), backstopping money market mutual funds, lending directly to security firms, banks and corporations, relaxing regulatory requirements and restarting the Term Asset-Backed Securities Loan Facility (TALF). The specifics on these programs can be found at federalreserve.gov.
We’re all in this together and we want our customers to be able to take advantage of the Coronavirus relief options that are available. Therefore, as we learn more information we will share it on our blog.