Aid to small business and hospitals comprise the bulk of the $484 billion aid package passed by the Senate on Tuesday to mitigate the economic fallout from the COVID-19 public health emergency. This measure, which is expected to be approved by the House on Thursday and signed into law, brings total aid directed by the federal government to $2.87 trillion. In nominal dollars, that’s the equivalent of 13.2% of gross domestic product.
Unless the crisis eases significantly, small and midsize businesses will eventually need more than $1 trillion.
Given the roughly $50 billion per day being requested by small and medium-size businesses in the Paycheck Protection Program, there is a risk that the increase in funding will exhaust itself shortly. Unless the crisis eases significantly, this implies that small and medium-size businesses will eventually need more than $1 trillion.
This supplemental round of aid, known as phase four, will most likely be the last “clean bill” that will target smaller businesses. Based on information gleaned from our contacts around Washington, D.C., the next bill will be much larger and feature partisan demands ahead of what is going to be a polarizing election in November.
While the administration thinks that the current aid tranche will be sufficient to meet demand, based on our core small and medium size clients we think the current supplemental package will be exhausted over the next few weeks. We do not anticipate any more aid forthcoming before early to mid-summer.
Beyond the $250 billion in unrestricted PPP funding, the most interesting development inside the supplement to the USA CARES Act is the provision of $60 billion that policymakers are targeting toward small business via insured depository institutions and credit unions with smaller asset bases.
In the supplemental bill, $30 billion in aid was set aside for insured depository institutions and credit unions with less than $10 billion in assets, and $30 billion in aid was set aside for those financial institutions with between $10 billion and $50 billion in assets.
During the first round of aid disbursement, smaller financial institutions distributed the overwhelming majority of cash, so this does represent the major policy improvisation in the new aid package. Whether, it will be sufficient to meet the robust demand will be the major narrative inside the policy community over the next two weeks or whenever this tranche of aid is exhausted.
Below the top-line $310 billion increase in the PPP, there was an additional $50 billion allocated for Economic Injury Disaster Loans, which includes $10 billion for EIDL advance grants and $2.1 billion in SBA administrative expenses.
Unfortunately, there were no changes made to the Coronavirus Relief Fund for state and local governments. Due to what looks like a $500 billion hole blown in state and local balance sheets, we anticipate that will be the major feature of any phase five aid bill.
The third major feature to the supplemental package was additional funding for hospitals and testing — $75 billion for hospitals and $25 billion for testing. Of that $25 billion, $11 billion will be distributed to the states and the remainder will target an array of federal government agencies that are conducting serology work, research, development and deployment of testing.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
