COVID-19 | National Rescue Packages

April 9, 2020, updated April 11—The national social-distancing shutdown to slow the spread of COVID-19 has left nearly 17 million filing for unemployment insurance as of the first week of April, more than 10 percent of the employed.

The flood of unemployment insurance claims was such that In New York State, the shortage of workers and flood of claims brought down the system's phone-answering system, with people saying they called 200 times in one day to try to get through.

The Congress came through with an unprecedented package through the CARES Act, which through the SBA assists smaller companies with direct aid in maintaining their payroll for eight weeks and provides loans for the period after that. It also provides extra funding for the Economic Injury Disaster Loan (EIDL) program of the SBA. In addition, it adds extra weeks to the Unemployment Insurance program, to 39 weeks, according to new guidelines. The Federal Reserve followed up with its own package of $2.3 trillion in lending facilities, including the Main Street Lending Program that sets aside $600 billion to guarantees 95 percent of loans to larger companies, and another program that sets aside $500 billion to provide aid to state and local governments.

The CARES Act seeks to rescue the economy from the virus by offering loan funds from two sources:

• The Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) Program. The loan is not forgivable, but provides an advance of up to $10,000 that does not need to be repaid; he said it took him only 10 minutes to apply. “This is first come, first served,” said Carl Irace, an attorney in East Hampton, N.Y. The PPP loans will be available through June 30, but the Treasury Department said it expected funds to be fully depleted unless another $250 billion is added by Congress. Many applicants, like applicants for unemployment insurance, had more difficulty than Irace in getting through to the SBA and to a bank that would lend them money. When they did they found that the loan program was capped at $15,000, which doesn't go very far even for a small business. A Long Island SBA official said in a webinar April 10 to call 800-659-2955 and keep trying.
• The new Paycheck Protection Program (PPP), a $349 billion loan fund to cover two months (actually, eight weeks) of payroll costs, including benefits, plus utilities, rent, and interest on mortgages. loans are available to all businesses with fewer than 500 or 1,000 (sources differ) employees, including nonprofits and sole proprietors, and since April 10, independent contractors and the self-employed. The loans are fully forgivable as long as business owners retain (or rehire) their staff at their pre-COVID levels. Irace said that the PPP loan is “bigger” than the disaster loan but “the application will take a little more time,” because employers must “certify in good faith” that their business was in operation and had employees on payroll on February 15, 2020, and that “current economic uncertainty makes this loan request necessary.” Also, 75 percent of the loan must be used to cover payroll costs and the applicant must document other expenses. The loans carry a 1 percent interest rate and a two-year term but the loans are forgiven after eight weeks if payrolls are kept up. (It is okay to rehire laid-off employees; that is part of the intention.) The loans are provided by SBA-approved lenders and other federally insured banks and credit unions. Irace said that he used an accountant to find a participating lender. Joe Gaviola, an investment adviser, the keeper of the Montauk Lighthouse, and the director of finance for the Montauk Historical Society’s nonprofit Lighthouse Committee, also got a PPP loan for the Committee. The Lighthouse, closed during the pandemic, has six full-time staffers to maintain the property and guide visitors. Gaviola applied through People’s United Bank on April 3 and got word on April 6 that the loan was approved.

Demand for the PPP loan has been high and Wells Fargo made the maximum number of loans that it was permitted, under a special limit, in a single weekend. However, anecdotes are mounting that many banks are having liquidity and staffing problems and are not being responsive to requests for loans under this program. A major advantage of the PPP would be that it relieves the huge burden on Unemployment Insurance offices in every state, the economic equivalent of ICUs in hospitals. The Act include nonprofits as qualifying companies.

It became clear soon after the Act was passed that at least two groups were left out of the PPP funding:

• Middle-sized companies that have more than 1,000 employees but are not in the category of the huge companies with more than 10,000 employees who usually have easy access to capital markets. An example is Eileen Fisher, which just exceeds the 1,000-employee limit.
• "Gig" workers and temporary workers that don't qualify for their employers' payroll loan program. One example among many is that of free-lance journalists who work for publications or media that can't afford to put them on the payroll. Independent contractors are supposedly included, but they have to get past the lender's scrutiny of records and income.

Middle-Sized Companies–Now, the Main Street Lending Program

In the next few days, the Chairman of the Federal Reserve Board has announced a facility that will add to the PPP funding support for middle-sized companies to maintain their payroll for eight weeks. The Fed's $2.3 trillion injection of loan funds will assist middle-sized companies in keeping their employees on the payroll for the anticipated period of the lockdown, to slow the spread of the COVID-19 disease.

The Main Street Lending Program and Main Street Expanded Loan Facility will be part of Title IV of the CARES Act, Section 4003, says the Treasury. It will finance four-year loans to businesses with up to 10,000 employees or revenues up to $2.5 billion. Principal and interest payments will be deferred for the first year. Unlike the PPP loans, they do not have a grant feature and are fully repayable. The loans are originated and issued by banks, which will retain 5 percent of the loans while the Fed will buy the remainder. The Main Street facility will be operated through a Federal Reserve-Treasury arrangement and will purchase from banks up to $600 billion of loans. (In addition, the Fed says it will lend $500 billion to struggling state and local governments, and will broaden some of its earlier lending programs to help big corporations.)

Principal and interest payments will be deferred for one year. Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Smaller firms that have already taken advantage of the SBA program for small businesses may also take out Main Street loans. The Federal Reserve will oversee loans of $1 million to $25 million with a four-year maturity that would not be forgivable. The Federal Reserve is accepting recommendations until April 16.