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Covid-19 coronavirus: an overview of U.S. federal legislation phase 4

Congress passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in late March 2020.

The CARES Act included a Paycheck Protection Program ("PPP") intended to offset economic harms from the Covid-19 crisis unique to small businesses. To do so, Congress allocated $349 billion to the Small Business Administration ("SBA") for forgivable loans to business concerns, nonprofit organizations, veterans organizations, and Tribal businesses that, along with their affiliates, employ no more than 500 employees on a full-time, part-time, or other basis during the period from February 15 to June 30, 2020. The details of the PPP are summarized here

However, on April 16, 2020, the SBA announced that it was unable to accept new applications for small business loans under the CARES Act due to exhaustion of the CARES Act appropriations for the programs.  The pace with which the PPP's initial $349 billion fund was quickly depleted led to criticism that the original program did not go far enough to help struggling businesses.

In response, the Senate passed a new funding measure, the Paycheck Protection Program and Healthcare Enhancement Act, to address these concerns on April 21, 2020. The measure quickly passed the House of Representatives on April 23 and was signed by President Trump the next day.

This new measure is commonly referred to as "Phase 4" Covid-19 legislation, as it is the fourth federal law passed to address the crisis. Allen & Overy previously summarized Phases 1 and 2 here and summarized Phase 3 (the CARES Act) here.

Key Measures

Most of the Phase 4 legislation consists of increased funding for small business relief programs already authorized under the CARES Act. It does not change the substance of these programs or the procedure on how to receive small business loans. However, the Phase 4 legislation does contain several important provisions that will be important to U.S. businesses.

  • The PPP increases from $349 billion to $659 billion. This opens up nearly double the resources for eligible businesses that may have missed out on the first round of PPP loans under the Phase 3 legislation, though some experts expect even this new fund to be depleted in a matter of days. Likewise, the funding for emergency Economic Injury Disaster Loans (EIDL) provided under the Phase 3 legislation increases from $10 billion to $20 billion, and an additional $50 billion is appropriated for EIDL loans. The EIDL program is a different relief program from the PPP under the CARES Act and but does not contain forgiveness terms.
  • Sets aside small business funding for loans from smaller banks and community financial institutions. $30 billion of the new PPP funding shall be allocated to PPP loans originating from insured depository institutions or credit unions with consolidated assets of between $10 billion and $50 billion. An additional $30 billion in the new PPP funding shall be allocated to PPP loans originating from those same institutions that have less than $10 billion in consolidated assets, as well as from "community financial institutions" such as minority-owned depository institutions; state development companies certified by the SBA; and other non-government institutions that promote development of underserved communities through equity investments or loans.
  • Clarifies agricultural businesses' eligibility for EIDL loans. Agricultural enterprises with no more than 500 employees were eligible for PPP loans under the CARES Act. However, the CARES Act did not address whether such enterprises were also eligible under the EIDL program (from which they would have historically been excluded in the pre-CARES Act context). The Phase 4 legislation clarifies that agricultural enterprises with no more than 500 employees are indeed eligible for the EIDL program in addition to the PPP.

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