President Trump signs into law an additional $500 Billion Relief Package
Today, Friday, April 24, 2020, President Trump signed into law the “Paycheck Protection Program and Healthcare Enhancement Act,” providing an additional $484 Billion in relief, with a focus on small businesses and health care providers. Although it is hard to believe, it was less than a month ago that President Trump signed into law the “CARES Act,” a $2 Trillion relief package.
The CARES Act contained $349 Billion in funding for the Paycheck Protection Program and an additional $10 Billion in SBA funding for the Economic Injury Disaster Loan Program. These funds were quickly depleted, with the need far outpacing the supply of dollars. Many banks were overwhelmed with the demand from potential borrowers, and by the time processes were put in place to better handle applications, the SBA announced it was out of funds. In response, Secretary of Treasury Mnuchin began working with Congress to approve additional funds for these programs. This most recent legislation provides an additional $310 Billion for the Paycheck Protection Program and an additional $10 Billion in SBA funding for the Economic Injury Disaster Loan Program.
It remains to be seen whether these additional funds will meet the existing demand for the program dollars. Some in the banking industry have estimated that these additional funds will quickly be exhausted by applications that were already in process at the time the initial funds were depleted.
The initial round of funding saw a number of large and public companies receive covered loans under the Paycheck Protection Program, which has drawn increased criticism. In response, the Department of Treasury issued additional guidance regarding the required applicant certifications, including that “it is unlikely that a public company with substantial market value and access to capital” can certify in good faith that the covered loan under the Paycheck Protection Program is necessary to support ongoing operations of the borrower. These borrowers are permitted to repay the funds by May 7, 2020 without consequence, and the repaid funds should then be made available to other qualifying businesses. While the Wall Street Journal reports that at least 100 public companies received funds under the Paycheck Protection Program, it is unclear the amount of deployed funds that will be repaid.
The past month has seen the Department of Treasury and the SBA focus primarily on the deployment of the funds and the replenishment of the programs when it became apparent the need was far greater than anticipated. As a result, there is very little guidance on the process of calculating and requesting forgiveness, and many questions remain. While many applicants under the Paycheck Protection Program were frustrated during the initial round of funding, a number of applicants were approved and have received loans. For these borrowers the eight week covered period to use the funds in accordance with the program requirements and to request forgiveness has already begun. We anticipate that the Department of Treasury and the SBA will now turn their attention to providing additional guidance to borrowers and lenders on the use of the funds and on requirements to achieve full forgiveness.
We also anticipate additional guidance regarding the interplay of multiple programs. The CARES Act contained a number of ancillary programs, as does this most recent legislation. Particularly borrowers who are also recipients under other programs, e.g. health care providers who have received funds under the Provider Relief Fund, should be paying particular attention to the separate and distinct program requirements and the way that these requirements will interact with each other. Documentation will be key for all borrowers, and particularly for borrowers who receive funds with varying usage and reporting requirements.
Much of the guidance we have received thus far in connection with the Paycheck Protection Program is in the form of additional “Frequently Asked Questions.” Borrowers should continue to monitor www.treasury.gov and www.sba.gov for additional information and guidance on the program including the requirements and process for applying for covered loan forgiveness. For health care providers, we anticipate additional guidance will also continue to be issued by the Department of Health & Human Services at www.hhs.gov.