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Government rescue programs hit their first test in doling out tens of billions of dollars: What you need to know

Posted April 13, 2020 6:06 p.m. EDT

— The federal government is continuing to kick its coronavirus relief and rescue programs into gear, with no shortage of issues, complaints and concerns accompanying those efforts.

This week marks the first test for a central pillar of the $2.2 trillion economic relief law: the deployment of tens of billions of dollars in payments directly to individuals and families.

Bottom line: The initial tranche of direct payments have long been expected to be the most seamless of all the processes put into place in the new law. The IRS utilizes direct payments into bank accounts each year for tax refunds, and those with that information on file, or who have since filed that information in recent days, are expected to receive a quick turnaround. Questions remain, however, about those who don't have that information on file or have limited or no access to financial institutions. And in almost every case, those are the individuals and families who need the money most.

Direct payments

The Treasury Department estimates more than 80 million Americans will receive their direct payments this week. The payments are being automatically issued to eligible individuals and families who received a refund using direct deposit in 2018 or 2019. In total, the Treasury Department says they expect "a large majority of eligible Americans" will receive their payments within the next two weeks.

Social Security and railroad retirement recipients who did not file a tax return in 2018 or 2019 should also receive their payments automatically.

The speed in which this was turned around is notable -- and impressive. But this was also the easy part.

Treasury and the IRS have also launched a portal for non-filers to input their direct deposit information -- this is crucial as the government attempts to identify and deploy cash by direct deposit as much as it can. That process -- and how effective it is -- will largely determine the overall success of the program designed to send direct cash straight to individuals and families facing the economic dislocation created by the coronavirus pandemic.

Small Business Emergency Loan Program

The Small Business Administration's Paycheck Protection Program has now been running for more than a week and the topline numbers underscore the urgent need for the $349 billion allocated.

The numbers: As of this moment, 904,000 applications have gone through and $221 billion in loans have been approved. That doesn't mean $221 billion has gone out the door however, as some banks have struggled to finalize and close loans in recent days. That said, largely through community banks, billions of dollars have gone out the door.

The process remains filed with potential pitfalls however. Even after multiple rounds of new guidance for lenders, there are still outstanding questions. There are still no clear guidelines for self-employed or independent contractors applying for the loans although the process has now been officially opened up to them.

Tech capacity is still an issue for lenders trying to move applications through the Small Business Administration, though the process has been bolstered in recent days.

There's also a simmering issue of access to the funds -- and whether only those with clear relationships (or lines of credit) with financial institutions, or the ability to bring in lawyers or other financial experts with connections to those institutions, are moving ahead of those who lack that capability. There are also concerns that businesses who don't need the funds are seeking them due to the terms.

"People may look at this (funding) and say I might as well apply for the loan and get the money," Republican Sen. Ron Johnson of Wisconsin said. "That will sop up some of these $350 billion."

Another industry source told CNN on Monday that there is growing concern of whether there are appropriate safeguards to ensure the money is going to those who actually need it the most.

Johnson told CNN Monday that he wants to see these issues fixed before Congress allocates any more money to the program, potentially signaling that Republicans may need to do more than just boost the funding for the agency.

On the minds of lawmakers and stakeholders is that the money is first come, first serve, so this remains a big issues for both small business owners and lawmakers.

"We've got a bunch of guys who are saying not a single small business in their state has seen any money," one Democratic senator told CNN. "That's a huge problem."

Perhaps most glaringly there is the issue of the money itself. The SBA has informed lawmakers they will run out of money from the $2.2 trillion rescue package by the end of the week. That is what has driven the current congressional debate over an additional $251 billion in funds.

The other SBA Loan program

A ton of attention has been paid to the rocky rollout of the Paycheck Protection Program, but it's quite possible there's more frustration with a second SBA program -- the Economic Injury Disaster Loans. I've spoken to more than a dozen small business owners who have applied for the program weeks ago, with the promise that a $10,000 advance would be available within three days, and have either heard nothing at all or been told the maximum size of their loan would be significantly smaller than initially expected.

Industry groups have reported that the money is sometimes just $1,000 per employee, far short of what they thought they could get. And, this was intended to be a lifeline and yet it is falling far short.

Congress is going to have to address this soon, administration officials and congressional aides say. The program is massively oversubscribed and worth keeping an eye on: Congress has allocated $17 billion for the program. There are already requests in for more than $380 billion.

Waiting for the terms

The Treasury Department and Federal Reserve are expected to roll out the details and terms for a lending facility for large distressed companies. This is required by the $2.2 trillion rescue package, and the Fed has already rolled out facilities to address mid-sized businesses, states and cities and to purchase Paycheck Protection Program loans off the books of banks in order to increase their loan capacity. The details of the large company facility will be extremely important however -- and companies, lawmakers and K Street alike are all clamoring for insight into what the Treasury and Fed will be looking for in companies who seek access.

The Fed

No institution is playing a bigger, or more important, role in the relief efforts than the Federal Reserve. That will become even more apparent this week with the expected release of the terms for the lending facility for distressed large businesses.

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