Media Center

News Publications Articles Videos
CARES Act Emergency Relief and Taxpayer Protections Loans
March 27, 2020


$500 billion in loans and guarantees for big businesses, states, municipalities

Purpose 

To provide liquidity to eligible businesses, states and municipalities related to losses incurred as a result of coronavirus, the Secretary of the Treasury is authorized to make loans, loan guarantees and other investments totaling up to $500 billion.

Emergency Relief and Taxpayer Protection Loan Allocation

Less than 10 percent of the $500 billion, or $46 billion, is allocated for passenger air carriers ($25 billion), air cargo carriers ($4 billion) and businesses critical to maintaining national security ($17 billion). 

The remaining 90-plus percent or $454 billion is available to make loans and loan guarantees to, and other investments in, programs and facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, states or municipalities (including Indian Tribes) by (a) purchasing obligations or other interests directly from issuers of such obligations or other interests, (b) purchasing obligations or other interests in secondary markets or otherwise, or (c) by making loans including loans or other advances secured by collateral.

Loan Categories 

The $46 billion basket of available loans for passenger air carriers, air cargo carriers and businesses critical to national security are referred to as Section (b)(1-3) loans. 

The remaining $454 billion basket loans are referred to as Section (b)(4) loans and are intended for providing liquidity to the financial system that supports lending to eligible business, states and municipalities through (a) purchasing obligations directly from issuers of such obligations, (b) purchasing obligations or other interests in secondary markets; or (c) making direct secured or unsecured loans.       

Forms, Terms and Conditions

A loan, loan guarantee or other investment by the Secretary shall be made in such form and on such terms and conditions as the Secretary determines appropriate, provided the loans are made at a rate of interest based on the risk and current average yield on outstanding marketable obligations of the U.S. government of comparable maturity. 

No later than 10 days after enactment of the CARES Act, the Secretary shall publish procedures for application and minimum requirements, for making loans, loan guarantees or other investments.  

Conditions to Section (b)(4) loans include:

  • Must be a direct loan to eligible businesses that are created or organized in the U.S. and that have significant operations in, and a majority of its employees based in, the U.S.
  • Section 13(3) of the Federal Reserve Act (12 USC 343(3)) regarding loan collateralization, taxpayer protection and borrower solvency shall apply to any program or facility under Section (b)(4)
  • Loans under b(4) may not be reduced through loan forgiveness
  • Loans are deemed indebtedness for federal tax purposes
  • Employee Compensation is limited for borrowers of Section (b) loans

Section (b)(4) loans for Mid-Sized Businesses 500-10,000 Employees

These loans require no principal or interest payment during the first six months of the loan.

These loans are to be established by the Secretary who is charged to endeavor to seek the implementation of a program or facility under (b)(4) that provides financing to banks and other lenders that make direct loans to eligible businesses, including nonprofit organizations, with such direct loans being subject to an annualized interest rate that is not higher than 2 percent per annum.

Section (b)(4) loan borrowers are required to make the following good faith certifications:    

  • the uncertainty of the economic conditions as of the date of the application makes the loan necessary to support the ongoing operations of the recipient
  • the funds it receives will be used to retain at least 90 percent of the recipient’s workforce at full compensation and benefits until Sept.30, 2020
  • the recipient intends to restore not less than 90 percent of the workforce that existed as of Feb.1, 2020, and restore all compensation and benefits to the workers no later than four months after the termination of the public health emergency
  • recipient is an entity or business domiciled in the U.S. with significant operations and employees in the U.S.
  • recipient is not a debtor in bankruptcy
  • recipient is created or organized under U.S. law and has significant operations and majority of employees based in the U.S.  
  • recipient will not pay dividends or repurchase an equity security of the recipient or parent company that is listed on a national exchange while the direct loan is outstanding
  • recipient will not outsource jobs for the term of the loan and for two years after completing repayment of the loan
  • recipient will not abrogate existing collective bargaining agreements for the term of the loan and for two years following repayment of the loan
  • recipient will remain neutral in any union organization effort for the term of the loan

Main Street Lending Program/Loans to Small and Midsized Businesses 

The Board of Governors of the Federal Reserve may establish a Main Street Lending Program or similar program that supports lending to small and mid-sized business on such terms and conditions as the board may set consistent with Section 12(3) of the Federal Reserve Act including any such program in which the Secretary makes a loan, loan guarantee or other investment under (b)(4).

For assistance, please do not hesitate to contact either Jon Stenquist at jstenquist@parsonsbehle.com or Jon Butler at jbutler@parsonsbehle.com