By  Eli Han, Mathew Dickerson and Yi He


The COVID-19 outbreak in the United States has wreaked havoc on the U.S. economy.  In response, the U.S. government has taken extensive measures to stabilize and stimulate the economy.  The most recent such measure is a piece of legislation delivering an economic rescue package, the “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”).  The CARES Act was passed by both Houses of Congress last week and was signed into law by President Trump on March 27, 2020.

The CARES Act represents phase three of a series of legislative efforts to combat the COVID-19 outbreak itself and the outbreak-induced downturn.  Phase one was the “Coronavirus Preparedness and Response Supplemental Appropriations Act”, an emergency supplemental spending bill that President Trump signed into law on March 6, 2020.  The law allocated approximately $8 billion to U.S. federal agencies towards, amongst other things, developing vaccines, disease surveillance, and the provision of disaster-relief loans.  Phase two occurred on March 18, 2020, when President Trump signed the “Families First Coronavirus Response Act”, which sought to mitigate the outbreak’s impact on the U.S. workforce by providing paid sick leave, tax credits, free COVID-19 testing, expanded food assistance and unemployment benefits, and increased Medicaid funding.

Aside from legislative efforts, the U.S. Federal Reserve Board and the Federal Reserve Bank of New York also used their existing authorities to inject vast amount of liquidity into the U.S. economy.[1]




The CARES Act is an omnibus bill that delivers a diverse package of relief programs to individuals, businesses, state and local governments and federal government agencies.  With respect to its economic stabilization and relief measures, the CARES Act, among other things, authorizes financial assistance in the form of loans, guarantees and other investments to distressed businesses such as air carriers; provides relief to small businesses that have been hit particularly hard by the COVID-19 outbreak through a Paycheck Protection Program, under which eligible businesses will be able to borrow from lenders under the Small Business Act (“SBA”) non-recourse loans with favorable terms, guaranteed by the federal government; provides direct cash payments to individuals through tax rebates; and suspends payments and the accrual of interest on federal student loans.  The CARES Act also includes comprehensive tax reliefs for individuals and businesses impacted by COVID-19, and authorizations, appropriations and other provisions designed to address the needs in the fields of medical product supply, health care and public health, pharmaceutical research and innovation and related education and other areas.

In this client memo, we discuss the key components of the CARES Act, with a particular focus on the economic stabilization and relief provisions and programs.  We discuss the key tax provisions of the CARES Act in a separate client memo.[2]



1.Help to U.S. Economy in General

The CARES Act provides $500 billion economic stabilization funds, in the form of loans, guarantees and other investments, for financial support to the U.S. business economy.  Approximately $46 billion of that amount is designated for airlines, cargo carriers and businesses critical to maintaining U.S. national security. The remainder will be used to make loans and loan guarantees to, and other investments in, the Federal Reserve’s existing programs or facilities.  Financial assistance under this program will be available to eligible U.S. businesses[3], U.S. states, and local governments.  Terms and conditions for the provision of this support, including interests rates for loans, appropriate covenants, representations, warranties, and requirements, will be determined by the Secretary of the Treasury, and the Secretary is required to publish applications procedures and minimum requirements within 10 days of the enactment of the CARES Act. Key features of this program include the following:

  • All loans and loan guarantees should be for as short a duration as practical, but in any case not longer than five years, and should either be sufficiently secured or made at an interest rate that reflects the risk of the loans or loan guarantee, which generally should not be less than the interest rate for comparable loans prior to the COVID-19 outbreak.
  • Loans and loan guarantees to eligible businesses will be made after Secretary of the Treasury determines that alternative credit is not otherwise reasonably available to the borrowers.
  • For the period ending one year after the loan or loan guarantee is repaid or terminates, business borrowers will be prohibited from:
    • purchasing equity securities of the borrowers or their parent companies, directly or through their affiliates, if such equity securities are listed on a national securities exchange; or
    • paying dividends or making other capital distributions with respect to their common stock.
  • For the period to September 30, 2020, borrowers will be prohibited from reducing their workforce by more than 10% from their March 24, 2020 levels.
  • Borrowers will be required to cap all employee compensation (including salary, bonuses, and awards of stock), for the period ending one year after the loan is repaid, as follows:
    • for officers or employees who received more than $425,000 in 2019, they cannot receive:
      • more compensation than they received in 2019; or
      • severance pay or other benefits upon termination in excess of twice their 2019 compensation amount.
    • for officers or employees who received more than $3 million in 2019, they cannot receive total compensation in excess of $3 million plus 50% of the excess over $3 million they received in 2019.
  • Businesses in which the President, Vice President, heads of executive departments, or members of Congress (and their family members) hold a 20% or greater direct or indirect interest, are excluded from receiving support.
  • For loans or guarantees to airlines, cargo carriers and businesses critical to maintaining U.S. national security:
    • If such business is a publicly traded company, the Treasury must receive warrants or equity interests in such business in return; or
    • If such business is not a publicly traded company, the Treasury may decide to receive warrants or equity interests in such business or senior debt instruments at its discretion; and
    • Taxpayers must reasonably participate in equity appreciation in the case of warrants or equity interests, or receive a reasonable interest rate in the case of senior debt instruments.
  • The principal of any loans provided under this program are not eligible for loan forgiveness.


This program also makes specific provision of financial assistance for mid-sized businesses, i.e., eligible businesses with 500 to 10,000 employees. Direct loans under this program will have an interest rate capped at 2% per annum, with no repayment requirements for the first six months or such longer period as the Secretary of the Treasury may determine.  Businesses seeking loans under this program must certify that, due to the economic uncertainty, their loan request is necessary, and that the funds they receive will be used to retain at least 90% of their prior workforce as of February 1, 2020 until September 30, 2020, at full compensation and benefits.  As with the broader program described above, with limited exceptions, borrowers must not pay dividends or undertake buybacks in their own, or their parent companies’, equity securities, if listed on a national securities exchange, while the loan is outstanding, and must commit to not outsourcing or offshoring any jobs, or abrogating any existing collective bargaining agreements for the term of the loan plus 2 years, or interfering with any union organizing effort for the term of the loan.

The CARES Act establishes a new Office of the Special Inspector General for Pandemic Recovery within the Treasury Department, who is responsible for supervising and coordinating efforts to audit and investigate the implementation of the relevant economic stabilization provisions of the CARES Act. This new office has powers to request and subpoena information from lenders to ensure the proper use of funds. In addition, a new Congressional Oversight Commission is established to report to Congress on the use, impact and effectiveness of the economic stabilization provisions of the CARES Act.


2. Help to Small Businesses

Additionally, the CARES Act amends Section 7(a) of the SBA to include a “Paycheck Protection Program” (the “PPP”), a $349 billion program to assist small businesses, i.e., eligible U.S. businesses with 500 or fewer employees, certain nonprofit organizations and eligible self-employed individuals, amongst others, to obtain loans.  Key features of the PPP are as follows:

  • The PPP will be administered by the Small Business Administration (the “Administrator”), under which the Administrator may participate in or guarantee covered loans.  Existing SBA lenders will have the authority to make and approve loans under the PPP; and the Administrator may extend authority to new lenders that it determines to have the necessary qualifications.
  • Loans under the PPP will be available through June 30, 2020, and recipients must certify that the proceeds will be used for maintaining payroll, covering interest on mortgage payments, rent, utilities, interest on outstanding loan obligations, and retaining workers and that, given the current economic uncertainly, the loan is required.  Borrowers must not make duplicate loan applications.
  • The maximum amount of each loan is the lesser of $10 million or 2.5 times the average monthly payroll costs, plus the value of any existing Economic Injury Disaster Loans (“EIDL”) received after January 31, 2020.
  • An applicant does not need to show it was unable to obtain credit elsewhere.
  • Interest rates on the loans will be capped at 4% and no personal guarantee or collateral will be required for borrowing the loans.
  • Lenders of the loans are required to defer repayments for no less than 6 months.
  • Lenders will be reimbursed by the Administrator within five days after disbursement of the loans to the borrower, at a rate of 5% for loans of not more than $350,000, 3% for loans between $350,000 and $2 million, and 1% for loans between $2 million and $10 million.
  • Parts of the loans used to cover payroll costs (which include costs relating to continuation of healthcare, sick and family leave benefits), interest on mortgage payments, and certain utility and rent costs, which may be 100% of the loan, are eligible for forgiveness. “Payroll costs” will not include, amongst other things, pro-rated annual salaries above $100,000 or wages to overseas employees.
  • The amount eligible for forgiveness is reduced if the recipients reduce:
    • the average number of full-time equivalent employees per month during the eight weeks after the loan is given, as compared with the average during a certain prior reference period; or
    • the wages or salaries of any employee during the eight weeks after the loan is given in excess of 25 percent of the employee’s wage or salary during the most recent full quarter of employment, excluding employees who earn more than $100,000 per year.
  • To promote the rehiring of workers and the reinstatement of pre-outbreak salaries, any loss in employee numbers or reductions in salaries occurring between February 15, 2020 and 30 days after the enactment of the CARES Act will be disregarded in determining the reduction in loan forgiveness, provided such workers and salaries are reinstated prior to June 30, 2020.


Borrowers seeking forgiveness must submit written records to the lender evidencing the satisfaction of the above, in the form of documents verifying mortgage, rent, and utility payments, payroll tax filings, state income, unemployment insurance filings, payment receipts, transcripts of accounts, and officer certifications, amongst other things.  Lenders are required to determine loan forgiveness within 60 days of receipt of an application by the borrower. Within 90 days of determining the amount of forgiveness, the Administrator will pay the lender the forgiveness amount, plus any interest accrued through the date of payment.

In addition to the PPP, the CARES Act also includes additional or expanded programs to assist small businesses, including:

  • Increasing the maximum amount of SBA Express Loans from $350,000 to $1,000,000, through December 31, 2020.
  • Expandingthe EDIL program by easing and expanding eligibility requirements.
  • Easing bankruptcy rules for small businesses by amending certain exceptions to qualify as a small business debtor, and increasing, from $2.75 million to $7.5 million, the aggregate debt a debtor can have to still qualify as a small business debtor.


3. Help to Individuals and Families

The CARES Act provides direct support to individuals and families by way of a one-time, refundable tax credit for certain individual taxpayers. This is addressed in more detail in our tax-focused client memo “Business and Individual Tax Relief and Benefits in the CARES Act.”

In addition, the CARES Act establishes a temporary Pandemic Unemployment Assistance program through December 31, 2020 to help those traditionally ineligible for unemployment benefits (for example, the self-employed, independent contractors, those with limited work history, etc.) who are unable to work as a direct result of the COVID-19 outbreak.  The program provides, amongst other things, an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months, and the opportunity for states to enter agreements with the federal government to provide enhanced benefits under existing state unemployment benefit programs, with such assistance not to exceed 39 weeks.


4. Help to the Healthcare industry

In addition to providing direct support to individuals, families and businesses, the CARES Act also directs significant funds towards the U.S. healthcare system to respond to the COVID-19 outbreak.  A summary of the key healthcare provisions is as follows:

  • The creation of a $100 billion fund to reimburse hospitals and health care providers, by way of grants and other mechanisms, for their healthcare-related expenses and lost revenues which are directly attributable to the coronavirus.
  • The fund will also receive over $27 billion over the next four years to procure personal protective equipment to replenish and restore federal and state stockpiles, to obtain vaccines, therapeutics and pharmaceutical ingredients, and to support future emergency preparedness.
  • Provision of $4.3 billion to the Centerfor Disease Control and Prevention, to prepare and respond to COVID-19, including funding for surveillance, expanded laboratory testing and health data collection.
  • Expanding the forms of testing available to detect COVID-19, including:
    • $80 million in funding to the Food and Drug Administration (the “FDA”), the federal agency responsible for, amongst other things, the approval of medical devices and tests, to develop necessary medical measures, vaccines, medical products and medical supply chains; and
    • allowing for emergency authorization requests for tests that have yet to be approved by the FDA.
  • Allowing over-the-counter medicinal products (e., non-prescribed) to be purchased using the health savings accounts of individuals.
  • Immunity from federal or state liability for licensed health care professionals who volunteer without compensation to treat COVID-19 infected patients, and who act in good faith within the scope of their license without criminal or gross negligence.
  • Requiring the Secretary of Health and Human Services to prioritize the review of alternative drugs where it has received a notification of a shortage or interruption in the supply of such drug by a drug manufacturer.
  • $15.81 billion in additional funding to the Supplemental Nutrition Assistance Program (“SNAP”) over the next 18 months, to fund increases in participation in the scheme as a result of COVID-19.
  • Increased funding towards telehealth and mental health services, and incentives for hospitals that treat Medicare patients (e., the U.S. federal health insurance program for elderly and disabled people).


5. Student Loan Relief

Acknowledging that much of the graduate workforce has ongoing obligations towards the repayment of federal student loans, the CARES Act also provides for the automatic suspension of payment and interest on all federal student loans, for a period of six months, and the suspension of collections efforts on student loan defaults (such as wage garnishments, social security offsets and tax refund seizures).  Despite pressure from Democratic members of Congress, the CARES Act does not provide for cancellation of student loans and does not provide any relief where students have taken out private loans with private lenders, not under a federal program.

In addition, the CARES Act provides grants and other financial assistance to educational institutions, agencies, teachers and students totaling more than $30 billion, to facilitate the response to COVID-19, and to cover costs associated with closures, acquisition of technologies to meet the changes to how teaching is delivered (i.e., through online means) and the disruption of campus operations, and otherwise revises provisions related to campus-based aid, supplemental educational-opportunity grants, federal work-study, subsidized loans, Pell grants, and foreign institutions.



The CARES Act represents a bipartisan effort rarely seen in the current hyper-partisan political environment, and the public reaction to the passage of the CARES Act has been largely positive.  The CARES Act contains the largest single economic rescue and stimulus package in the history of the United States.  However, given the enormous damage brought about by the COVID-19 outbreak, there is a sense that more has to be done by the U.S. government to steady the economy.  In the coming days, the applicable U.S. government agencies will start implementing the programs of the CARES Act, a gargantuan undertaking in and of itself.

Disclaimer:  This article provides general information only, which may or may not reflect the most current legal developments and does not constitute legal or other professional advice.  Readers should seek appropriate legal advice from counsel in their relevant jurisdiction(s) before taking or refraining from taking any action in reliance on any information contained in this article.  Nothing in this article shall create an attorney/client relationship with King & Wood Mallesons LLP or with any lawyer at King & Wood Mallesons LLP.  

[1]For the recent actions taken by the Federal Reserve, please see our client memo “Extensive New Measures by the U.S. Federal Reserve to Stimulate the Economy”

[2]Please see our client memo “Business and Individual Tax Relief and Benefits in the CARES Act” for tax-related discussions.

[3]Eligible businesses must be solvent, organized in the United States, and with significant operations, and with a majority of its employees based, in the United States.