What You Need to Know About the Proposed Senate Coronavirus Aid, Relief and Economic Security (CARES) Act

Financial Industry Alert

The goal of the trillion-dollar Coronavirus Aid, Relief and Economic Security Act (CARES Act) introduced yesterday in the Senate is the quick distribution of cash to individuals, small businesses and critical economic sectors such as the airline industry, providing financial assistance to students, expediting coronavirus testing and easing shortages of medical supplies and personnel. While the bill as drafted has met with resistance from Democratic leaders, we expect a version of this bill to be enacted soon. The CARES Act is 247 pages long and seeks to address many critical problems. We summarize below some key provisions.

Small Business Relief

Many small businesses lack the liquidity to survive prolonged periods of government-mandated closures or reductions in workforce at key operating facilities and are facing the imminent prospect of defaulting on lease and debt service obligations. The bill appropriates $300 billion to provide Small Business Administration loans to any business concern or nonprofit organization that employs no more than 500 and expands the allowable uses of SBA loans to include the payment of payroll, benefits, mortgage, rent and utility obligations arising between March 1 and December 31, 2020, along with any debt obligations that the enterprise incurred prior to March 1, 2020 (§§ 1102-1106). The maximum loan amount is $10 million. The sole eligibility requirements are that the company must have paid employees and have been in operation on March 1, 2020 (§ 1102). The bill guarantees 100% of the debt, waives application fees and provides deferral options for current SBA-loan borrowers (Id). It also proactively forgives portions of loan obligations that the enterprise utilizes to pay certain level of payroll costs during the period between March 1 and June 30, 2020, although such amounts are treated as loan forgiveness for tax purposes and are considered to be defaults for purposes of loan guarantee redemptions (§ 1105).

While the CARES Act bill funds small business development in order to help borrowers access funds (§§ 1103, 1104), it remains to be seen whether the loan application and approval process will be quick or prone to delays.

Economic Stabilization Measures for Businesses

The CARES Act bill provides businesses with temporary tax relief intended to increase their resilience to economic turmoil. These provisions, which are not limited to small businesses, may be subjected to further legislative negotiations between the Senate and the House of Representatives. In broad strokes, the bill delays the corporate tax payment deadline until October 15, 2020; defers the payment of payroll taxes incurred during the period between the bill’s enactment and January 1, 2021 with 50% due on December 31, 2021 and 50% due on December 31, 2022; removes income limitations on carry-forwards and carry-backs for losses arising in 2018, 2019 and 2020; removes limits on certain tax credits; and makes technical changes intended to ease businesses’ tax burdens (§ 2201-2209). The bill’s business tax relief provisions will mitigate some of the immediate effects of coronavirus-related business losses, which could increase lenders’ willingness to restructure loan covenants that risk triggering defaults and encourage suppliers and partners to continue to maintain business relationships. As analysts still are working to understand which sectors are most exposed to coronavirus risk, we expect additional, more specifically-tailored tax relief to follow.

One industry-specific form of relief provided in the bill is loan and loan-guarantee assistance to airlines, authorizing the Secretary of the Treasury to make $50 billion in secured loans and loan guarantees to passenger airlines, and $8 billion in secured loans and loan guarantees to cargo airlines (§ 3102). It also suspends excise tax liabilities for jet fuel and payments for air transportation for the period between the bill’s enactment and January 1, 2021 (§ 3201). What may be more noteworthy is that the bill also authorizes the Secretary to make $150 billion in secured loans and loan guarantees to other “eligible businesses” for which credit is otherwise unavailable and the intended obligation is “prudently incurred” (§ 3102). For loans to airlines and these other eligible businesses, the Secretary has discretion to set loan rates after considering market rates and is directed to “ensure that the Federal Government is compensated for the risk assumed in making loans and loan guarantees” (§§ 3102(c)(2), (d)(1)). 

Additionally, the bill authorizes the Secretary of the Treasury to enter into contracts through which the Federal Government can participate in borrowers’ financial gains through equity instruments such as equity and equity warrants (§ 3102(d)(2)). The CARES Act borrowers will be required to agree to limit executive compensation and severance payments to 2019 compensation levels. The extraordinary economic power that the proposed bill grants to the Secretary of the Treasury to determine “other eligible businesses” without legislative oversight is likely to be a significant point of contention during legislative negotiations over approval of the Senate bill, although we expect that the House likely will readily agree to relief for the airline industry, due to its nationwide footprint and highly visible crisis conditions.

The bill makes restrictions in the Emergency Economic Stabilization Act of 2008 (12 U.S.C. § 5236) that prohibit the Secretary of the Treasury from using the Exchange Stabilization Fund for the establishment of any future guaranty programs for the United States money market mutual fund industry inapplicable during any coronavirus-related national emergency as declared by the President (§ 5001). The financial press already has reported on the Secretary’s proposals to guarantee money market funds if it becomes necessary to prevent a crisis, and we do not expect this provision to be controversial.

Economic Assistance to Taxpayers

The CARES Act bill provides direct financial assistance to a large proportion of wage earners by advancing, as soon as possible, $1,200 to individual taxpayers, and $2,400 to joint filers (§ 2101). The payments are characterized as advances on new tax credits applicable to 2020 income taxes and are reduced by 5% of recipients’ income exceeding $75,000 for individuals and $150,000 for joint filers. The relief phases out at $99,000 for individuals and $198,000 for joint filers (Id). Income is determined by amounts declared on the most recently filed of 2018 through 2020 Federal income tax returns, and includes either $2,500 in net earned income, Social Security benefits, and veterans’ benefits, or else more than zero net income tax liability and gross income greater than the applicable standard deduction (Id). The bill also extends the 2019 Federal tax return deadline to July 15, 2020, and the deadline for initial installment payments to October 15, 2020 (§ 2102). Additionally, it eliminates the 10% early-withdrawal tax on coronavirus-related retirement plan withdrawals and plan distributions that do not exceed $100,000 in the aggregate during any tax year and enables individuals to repay such distributions (§ 2103). Further revisions are intended to facilitate taxpayers’ charitable contributions (§§ 2104, 2105). 

The bill funds Federal higher education financial aid and work study grants and eases student lending conditions in order to prevent students whose studies are interrupted due to coronavirus from losing financial aid or AmeriCorps service hours or being liable for tuition paid for by Federal loans or grants (§§ 4501-4512, 4514). It also suspends all Federal student loan payments and interest accruals for three months (§ 4513). The House is likely to be receptive to these provisions, which do not seem to be so substantial as to imperil the finances of Federal student lending programs. The bill also modifies paid leave and sick leave payment limits and requires states to make unemployment assistance applications available online, in person or by phone (§§4601-4604). 

Medical Measures

In addition to providing economic relief, the CARES Act bill makes significant policy changes to Federal healthcare spending in order to improve coronavirus care. Changes include provisions aimed at improving the medical product supply chain and increasing stockpiles of key medical supplies, mitigating emergency drug shortages by prioritizing review of drug applications and modifying Food and Drug Administration regulations, and altering regulations that could limit the production and marketing of coronavirus testing kits and drugs for animal illnesses that could cause serious human illnesses (§§ 4101-4141, 4302). It directs health insurers to provide coverage, without copays or deductibles, for coronavirus testing, and to cover coronavirus preventative services (§§ 4201, 4203). It also awards $1.3 billion for healthcare providers to prevent, diagnose and treat coronavirus (§ 4211).


The CARES Act bill makes significant commitments to supporting critical sectors of the nation’s economy. However, while some version of the bill is likely to be enacted promptly, the negotiations with the House are sure to result in modifications. Moreover, it is likely to be only the first of a series of Federal policy measures that will address coronavirus-related risk and harm.