Simplifying the CARES Act
$2 trillion is the largest stimulus in modern American history. Here’s how the money is allocated.
The CARES Act has been signed into law by President Trump, creating the largest economic stimulus package in modern American history. The $2 trillion bill designed to respond to the COVID-19 public health emergency delivers incredible amounts of money to small businesses, big corporations, public health initiatives, state and local governments, and individuals.
The funds being made available are part of the third aid package from Congress. The legislation is meant to keep businesses and individuals afloat during the complete suspension of typical American life due to COVID-19. So what does a $2 trillion dollar plan look like?
Aid for Small Businesses
Small businesses with 500 or fewer employees will be eligible for emergency grants and a forgivable loan program. $350 billion is being given to the Small Business Administration to provide loans of up to $10 million per business. The loan may be eligible for forgiveness if it is used to maintain payroll, cover rent or mortgage, keep up with debt, or keep workers on the books. $10 billion is allocated for emergency grants (up to $10,000 per business) meant to cover immediate operating costs that cannot be covered due to the pandemic. The final $17 billion is meant to provide relief to businesses already using Small Business Administration loans.
Loan Program
There are many differences between this loan program and the Economic Injury Disaster Loan that received additional funding in a previous act. For this loan, the maximum loan amount is the average monthly payroll for 1 year prior to the loan being made times 2.5 or $10 million, whichever is lower.
This loan may be used for payroll costs (including group health benefits, sick leave, and other common costs associated with employment), interest on mortgages, rent/lease payments, utilities, and interest on debt incurred during the period covered by the bill. You cannot use this loan if you have an existing SBA loan covering these expenses. Simply put, you cannot take out two loans to cover payroll.
There is no SBA fee for this loan. The usual requirement that the business is not able to obtain credit elsewhere is waived due to the public health emergency. There is no personal guarantee or collateral required. Loan proceeds that are not forgiven will have a term of 10 years maximum with an interest rate not to exceed 4%. Payment on these loans are deferred and interest does not accrue for 6 months to 1 year.
Forgiveness
Payroll costs (including some fringe benefits), mortgage interest, rent and lease payments, and utility payments. There are some limitations that can reduce what will be forgiven, namely, less full time staff or wages now than in the prior period the loan is basing funding off of. The wages of any employee who usually receives $100,000 or more annually is not eligible for forgiveness.
What do you need to apply?
You’ll need to provide your proof of payroll through tax filings, as well as documentation of lease/utility/mortgage obligations. The lender will require proof of the expenses actually being made for forgiveness or else that portion will convert to a normal loan, no longer eligible for forgiveness.
Public Health
The legislation allocates approximately $153.5 billion to help community and private health systems keep up with the expected volume of patients due to the outbreak. $100 billion will go to hospitals, another $11 billion to improve treatments, vaccine development, and diagnostics, and an additional $20 billion set aside for veterans’ health care. $16 billion will be allocated to increase development of necessary items (ventilators, masks, PPE). The final $6 billion and change will be split between community health centers, telehealth providers, and the CDC.
Aid for Individuals
This portion of the bill includes two main elements to help individuals through this challenging time.
The first element comes in the form of direct cash payments, estimated to total $300 billion. Most individuals earning less than $75,000 (based on your most recent tax return) will be receiving a one-time cash payment of $1,200. Married couples will receive two checks, and families will receive an additional $500 per child. For those individuals that make more than $75,000, the checks will shrink in size until being completely phased out once the individual makes more than $99,000.
The second element is a $260 billion allocation for extra unemployment benefits. With record-breaking claims being filed this week, this portion of the bill will be especially valuable to those impacted by the COVID-19 public health emergency.
Aid for Large Corporations
Nearly matching the bailout in 2008, the bill sets aside roughly $500 billion in loans and other money for large corporations. These will have to be paid back in full to the government, and are subject to public disclosures and other requirements. This portion of the bill saw major changes as it moved through Congress, including additional oversight, reporting requirements, and a complete ban on stock buybacks.
State and Local Government
Nearly $340 billion is allocated to state and local governments struggling to manage due to the impact of COVID-19. This includes direct aid ($150 billion), community block grants ($5 billion), education spending ($32 billion), and other impacted government entities.
Student Loan Relief
Federal student loan and interest payments will be deferred through September without penalty to the borrower. Students who are forced to drop out of school will not have that time away from school deducted from their lifetime limits on subsidized loan and Pell Grant eligibility. Additionally, many universities and programs focused on learning and education will receive funding. This all equates to over $40 billion in allocated funds.
Nutrition, Food Banks, SNAP
The COVID-19 public health emergency has brought many problems with the American economy to light. Food security amongst the most vulnerable populations is rare — there is an additional $26 billion allocated to protect these groups. Child nutrition is a major focus, giving schools more flexibility to provide meals for students. $15.5 billion is being given to the Supplemental Nutrition Assistance Program, meant to cover the expected cost of new applications as a result of COVID-19. Some additional funds are also being distributed to food banks. This is the second major round of funding for food security initiatives.
