COVID-19 relief and response

Financial services implications of the Consolidated Appropriations Act, 2021

Amy S. Matsuo

Amy S. Matsuo

Regulatory and ESG Insights Leader, KPMG US

+1 919-664-7100

Key points

  • The SBA PPP will be reactivated with new funding of $284 billion.
  • Key amendments to the PPP will expand eligible expenses, expand eligible entities, permit some eligible entities to receive a second draw PPP loan, and streamline loan application and forgiveness processes for loans of $150,000 or less.
  • Additional funding provisions direct $20 billion to the SBA EIDL advance program, $25 billion to rental assistance, and $12 billion to CDFIs and MDIs.
  • Approximately $429 billion in funding previously provided for emergency lending programs and facilities established by the Treasury and the FRB under the CARES Act has been rescinded and may be repurposed. 

The Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020 containing a variety of provisions for emergency relief to individuals and businesses related to COVID-19. The following summary looks at some of the key provisions that will specifically impact the financial services industry, including measures to provide additional assistance to small businesses, facilitate emergency capital investments by community development financial institutions (CDFIs), fund rental assistance for certain individuals, and extend regulatory relief related to the adoption of the Current Expected Credit Loss (CECL) methodology and troubled debt restructurings (TDRs). The full text of the Act is available here. (see Division N, Titles II, III, V, and X)

Paycheck Protection Program and Other Small Business

  • Appropriations. The Small Business Administration (SBA) is provided $284 billion for first and second draw forgivable loans under the Paycheck Protection Program (PPP).  Direct appropriations include:
    • $15 billion for first and second draw PPP loans made by community financial institutions.
    • $15 billion for first and second draw PPP loans made by certain small depository institutions.
    • $15 billion for first draw PPP loans made to eligible recipients with not more than 10 employees or made in an amount less than $250,000 in low-income areas.
    • $35 billion for covered entities that have not previously received a PPP loan.
    • $25 billion for second draw loans made to eligible recipients with not more than 10 employees or made in an amount less than $250,000 in low-income areas. (Section 323)
  • Modifications to the PPP
    • Expanded expenses. Forgivable expenses are expanded to include certain operating expenditures, property damage costs, supplier costs, and investments in facility modifications and personal protective equipment to operate safely. (Section 304)
      • The amended eligible expenses will not apply to a first draw loan for which the borrower has received forgiveness prior to the date of enactment. Eligible recipients of PPP loans may request an increase in their loan amount based on the expansion of eligible expenses if they have not received forgiveness prior to the date of enactment and if permitted by an interim final rule. (Section 304, 312)
    • Second draw. Small businesses with 300 or fewer employees that have sustained a 25 percent revenue loss in any quarter of 2020 compared to the same quarter in 2019 may apply for a second PPP loan, up to a maximum of $2 million.
      • Eligible entities must also have used or will use all of their first PPP loan.
      • For loans up to $150,000 the eligible entity may submit a certification attesting to the applicable revenue loss. Eligible entities that submit a certification must produce adequate documentation showing the entity met the revenue loss standard prior to submitting an application for forgiveness.
      • Lenders eligible to make first draw loans may make second draw loans. (Section 311)
    • Tax deduction. Business expenses paid for with the proceeds of PPP loans are tax deductible. (Section 276)
    •  EIDL deduction. The Economic Injury Disaster Loans (EIDL) deduction from PPP loans is repealed. SBA will issue rules within 15 days after enactment to ensure that all covered entities, including those that completed loan forgiveness prior to enactment, are treated equally. (Section 333)
    • Loan forgiveness. The loan forgiveness process is simplified for borrowers with PPP loans (first and second draw) of $150,000 or less. Lenders are given a “hold harmless” provision. (Section 305)
      • The amendments will apply to any PPP loan made “before, on, or after the date of enactment of this Act, including forgiveness of such a loan.”
      • SBA will establish a one-page loan forgiveness application within 24 days of enactment, requiring the loan recipient to provide information on i) number of employees retained, ii) estimated amount of covered loan spent on payroll costs, and iii) total loan value, as well as an attestation regarding the accuracy of the information. The recipient must retain records proving compliance for a period of four years.
      • The 60/40 expense allocation between payroll and nonpayroll costs continues to apply. (Sections 307, 311)
    • Expanded eligibility. Certain small businesses are now eligible for PPP loans, including small 501(c)(6) organizations that are not lobbying organizations and that have 150 employees or fewer, such as local chambers of commerce, economic development organizations, and tourism offices. Also added are individual news organizations, such as newspapers and public broadcasting organizations. Public companies are excluded. (Sections 317, 318)
    • Implementing regulations.  Within 10 days after the date of enactment, the SBA must issue implementing regulations to carry out the changes to the PPP. (Section 303)  
    • Prioritizing underserved communities. SBA will issue guidance within 10 days addressing barriers to accessing capital for minority, underserved, veteran, and women-owned business concerns for purposes of ensuring equitable access to the second draw PPP loans. (Section 311)
    • Other Small Business. Separate funding for other small business programs includes:
      • $15 billion for grants to independent live venue operators (e.g., theaters, museums); to be distributed by the SBA. (Section 324)
      • $20 billion for targeted EIDL advances; to be distributed by SBA. (Section 323)

Rental Assistance and Eviction Moratorium

  • Treasury will establish an emergency rental assistance program with $25 billion in funding. Set asides will be made for the U.S. territories ($400 million) and Native Americans, Alaska Natives, and Native Hawaiians ($800 million).
    • Treasury will distribute funds to states and localities using the same formula used to distribute Coronavirus Relief Funds.
    • 90 percent of funds must be used for payment of rent, rental arrears, utilities, utility arrears, and related housing stability services with 10 percent of funds available for housing stability services.
    • Specific guardrails are set to ensure support for the most in-need households, with a preference for households with 50 percent of area median income and below.
    • Support covering up to 15 months of arrears and forward assistance. (Section 501)
  • The CDC (Centers for Disease Control) eviction moratorium will be extended until January 31, 2021. (Section 502)

CDFI / MDI Community Lenders

  • Treasury is provided $9 billion to provide emergency capital investment in CDFIs and MDIs through purchases of preferred stock and other financial instruments from eligible institutions. A $4 billion set aside will be provided for institutions with under $2 billion in total assets, and institutions with under $500 million in total assets will be provided $2 billion of that $4 billion set aside.
    • Purchases may continue until six months after the COVID-19 emergency has been terminated.
    • Participants must develop and comply with a plan to maintain or expand significant lending or investment activity in “low- and moderate-income minority communities,” especially those disproportionately impacted by COVID–19, and minorities with significant unmet capital or financial services needs. (Section 522)
  • Treasury is provided $3 billion in funding for the CDFI Fund to be used as emergency grants to assist CDFIs that respond to economic impacts of COVID-19. 
    • $1.25 billion will be available for the current fiscal year. The remaining $1.75 billion will be available until it is expended though $1.2 billion are reserved for “minority lending institutions,” a new category of CDFIs that predominantly serve minority communities and are either MDIs or meet other standards for accountability to minority populations as determined by the CDFI Fund. (Section 523)

Adoption of CECL

  • The CARES Act provision under section 4014, which allows banks and credit unions to temporarily delay the adoption of the CECL methodology is extended until the earlier of (i) the first day of the fiscal year of the institution that begins after the national emergency termination date or (ii) January 1, 2022. (Section 540)

Troubled Debt Restructuring

  • The CARES Act provision under section 4013, which allows financial institutions to determine if they will suspend the Generally Accepted Accounting Principles (GAAP) requirements for recognizing any potential COVID-related losses from a TDR related to a loan modification is extended to the earlier of (i) 60 days after the national emergency termination date or (ii) January 1, 2022. Insurance companies are covered by the provision. (Section 541)

Federal Reserve Programs and Facilities

  • The Federal Reserve Board’s (FRB) authority to make new loans, asset purchases, or modifications through existing CARES Act facilities will terminate on December 31, 2020 and unobligated amounts appropriated for direct loans by Treasury and emergency lending programs and facilities established by the FRB, a minimum of $429 billion, will be rescinded. Treasury and the FRB may not establish future emergency lending programs and facilities that are the “same as” the CARES Act programs and facilities (except for the Term Asset-Backed Securities Loan Facility or TALF) but may still provide other emergency lending programs and facilities, as needed, in the future. (Sections 1003-1006)

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