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loan.9 Moreover, the conditions under which PPP loans are forgiven are complicated – and have become more complicated as SBA regulations have been finalized.10 As a result, some borrowers have delayed borrowing under the loan so far; others may be less cautious and end up “owing” their lenders although the money was initially sought in the belief that the debt would be forgiven.11 As another example, the CARES Act empowers the SBA to extend a small (up to $10,000) grant to certain small businesses,12 but these grants are only available to those applying for an Economic Injury Disaster Loan from the SBA.
The CARES Act also provides economic relief to individuals.13 Not all of this relief comes in the form of a loan: importantly, it expands access to unemployment benefits otherwise provided by state law. But some of this federal relief explicitly takes this form: the CARES Act enables individuals to borrow against their 401(k) and related plans without incurring the federal tax penalties that would otherwise apply – in other words, it ensures that the possibility of an existing “expensive” loan is made less expensive today but still holds potentially problematic consequences on retirement.14 Other aspects of individual economic relief are extended only to certain borrowers – namely, provisions in the CARES Act that entitle some individuals deferment on interest accruing on their student loans, and assurances of forbearance from foreclosure on their residential mortgages, only apply to those currently in debt in specified contexts. None of these protections provide debt forgiveness or even an extension of the term of the covered loans, however. And I am not alone in worrying about this construct.15
“Lending” a helping hand to the millions and millions of small businesses and individuals that have and will continue to suffer economically in the wake of the pandemic is not nothing. Those that receive these new loans, or that are entitled to compassionate treatment of existing loans, are, I’m certain, grateful for the helping hand.
9Summary of CARES Act, supra note 6. This loan will have been extended by a private financial institution; banks are “encouraged” to lend under PPP through promises under the CARES Act of a federal guarantee. Id.
10Small Business Administration, Interim Final Rule, Business Loan Program Temporary Changes; Paycheck Protection Program – Requirements – Promissory Notes, Authorizations, Affiliation, and Eligibility, 13 CFR Parts 120 and 121 (April 13, 2020), available at https://www.sba.gov/sites/default/files/2020-04/Interim-Final-Rule-04%2024%2020.pdf.
11Stacy Cowley, Emily Flitter and David Enrich, Some Small Businesses That Got Aid Fear the Rules Too Much to Spend It, New York Times (May 2, 2020), available at https://www.nytimes.com/2020/05/02/business/economy/loans-coronavirus-small-business.html?referringSource=articleShare.
12This grant is only available to “small businesses” already in line for an Economic Injury Disaster Loan (EIDL) from the SBA. Summary of CARES Act, supra note 6 (noting that EIDL “applicants can get up to $10,000 to cover immediate payroll, mortgage, rent, and other specified expenses” and that this grant does not have to be repaid; noting further that any “business that receives an EIDL can apply for, or refinance its EIDL into, the forgivable loan product” – in other words, through the PPP).
13Id. (summarizing provisions in the CARES Act providing benefits to individuals who might “(i) be eligible for additional unemployment benefits or tax rebates, (ii) have access to distributions from certain defined contribution plans, such as 401(k) plans, 403(b) plans and profit sharing plans, without penalty, (iii) be eligible for 401(k) plan and 403(b) plan participant loan relief, or (iv) be entitled to student loan deferment or mortgage forbearance”).
14Id.
15See Pamela Foohey, Dalié Jiménez and Christopher K. Odinet, The Folly of Credit as Pandemic Relief, _ UCLA L. Rev. __, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3588355; see also Foohey, Jiménez and Odinet, supra note 4.
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