The $2.1 trillion stimulus bill President Trump signed into law Friday, called "The Coronavirus Aid, Relief, and Economic Security Act," will disburse emergency relief throughout the economy. The showcase piece is the approximately $500 billion in direct payments to households. For business, the law includes almost $1 trillion in assistance to small and large employers and also includes some tax and regulatory relief.
For large companies, the centerpiece is the authority given the Treasury to use $500 billion in funds to leverage loans and loan guarantees by the Federal Reserve. Because of the effects of leveraging, the actual amount in loans could total several trillion dollars.
"Overall, this is good," Heidi Shierholz, an analyst at the Economic Policy Institute, told The Hill. "[The help] should get out quickly."
Eligible borrowers are businesses, states and localities. Just under 10% of the $500 billion, or about $46 billion, is carved out for airlines.
The Treasury is supposed to publish rules on how the loans will be made by mid-April. Congress built in a number of guardrails, including limitations on stock buybacks and dividend payments, executive compensation, and layoffs, for participating companies. The loans are repayable and terms must be publicly disclosed.
- Loans are for up to five years, at an interest rate comparable to what was applicable prior to the outbreak, and limited to companies that are having trouble getting credit elsewhere.
- Companies must try to maintain employee levels at what they were before the outbreak and at a minimum not reduce headcount by more than 10%.
- Borrowers have to limit pay: executives earning more than $425,000 in 2019 can't earn more than that, or get severance for that amount, for up to a year after the loan term is ended, and for executives earning $3 million in 2019, they can earn an increase only up to half of their 2019 pay. Compensation includes salary, bonuses, awards of stock, and other financial benefits.
- Oversight is provided by a special inspector general, appointed by the president with Senate consent, and a congressional oversight commission.
Small business help
Smaller businesses with 500 employees or fewer can receive emergency grants and forgivable loans from a separate pot of almost $500 billion.
The goal of the assistance is to encourage businesses to retain employees, even if social distancing mandates mean they have to shut their operations down temporarily.
The emergency grants come out of a $10 billion pot and can be for up to $10,000 to help cover operating expenses.
The forgivable loans come out of a $350 billion pot managed by the Small Business Administration (SBA). Loans can be up to $10 million to help meet payroll, retain workers, pay rent and meet mortgage and other debt obligations. For the loans to be forgivable, borrowers have to retain their employees at least through the end of June.
Some analysts consider the small business loan pot the most important part of the law, because it injects assistance into the part of the economy — restaurants, stores and other Main Street businesses — that are bearing the brunt of mandated social distancing.
"This provision is super important," Derek Klock, a professor of finance at Virginia Polytechnic Institute and State University, said in The Hill. "So many people are employed by small businesses and yet small businesses don’t have an alternative method for financing."
There’s also a pot of $17 billion to help small businesses that already have an SBA loan cover their payments.
For both small and large businesses, the law creates a refundable tax credit that covers 50% of their first $10,000 in compensation costs per employee. For companies with more than 100 employees, the credit is to cover wages paid to employees who aren’t working because of the pandemic.
Tax and regulatory relief
In addition to these and other big sources of money, including some $125 billion to healthcare organizations, the law tweaks existing rules to encourage businesses to keep their employees on board and improve their liquidity position, among other goals. In one of the most important changes on the tax side, the law restores carryback rules for net operating losses to what they were several years ago to help companies preserve cash.
Over the last several years, Congress has effectively made it impossible for companies to carry back net operating losses and has allowed companies to offset only 80% of taxable income with net operating losses. But under the law, companies no longer face a limit on the use of carryovers from years beginning before January 1, 2018. And they can carry certain losses back for five years.
In all, almost a dozen tax changes were included that should help companies preserve liquidity, among other pressing needs.
On the regulatory side, the law is threaded throughout with provisions granting a temporary easing of rules, including several that banks have been seeking:
- CECL postponement. Banks won’t have to use the new expected credit loss (CECL) accounting standard for making upfront estimates of loan losses. Large banks were to begin using the standard this year, but they can now choose to postpone its use and continue using the traditional incurred-loss standard. The option to postpone goes away once the state of emergency is lifted or the end of this year, whichever comes first, although in rules the Federal Reserve published on Friday, the deferral period is for two years. Community banks and credit unions, which were slated to start using the standard at the end of the year, get that requirement deferred.
- Troubled debt restructurings. To encourage banks to help companies struggling to make loan payments, the law lets them modify loan terms without having the modification listed as a troubled debt restructuring, which otherwise would count as a negative when they’re evaluated by federal regulators.