In addition to facilities supporting as much as $4.5 trillion in lending for large companies and municipalities, the CARES Act creates a major new program within the Small Business Administration (SBA) for gig employees, the self-employed, and entities with fewer than 500 employees or that meet other criteria for loans up to $10 million to cover payroll, benefit, rent, and other expenses due in the midst of the COVID crisis. These loans will be rushed out by the SBA through banks and other lenders sure to be contacted by millions of eligible individuals and businesses, not only hard-pressed by the crisis, but also attracted by the fact that – if loan terms are honored – this debt is forgiven. The program thus establishes a de facto grant program designed to support macroeconomic resilience under acute stress. Lenders take no risks and absorb few costs in making these loans. Loans may be sold into the secondary market, but it is likely to take time for the SBA to develop the mechanisms for doing so given the significant differences between these loans and prior SBA obligations. The law also sets a statutory risk-based capital level for these loans, continuing Congressional precedent for dictating regulatory capital to achieve policy objectives.
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