Emergency Loans, Loan Guarantees, and Other Investments Under the COVID-19 Stimulus

The U.S. Congress appears close to finalizing the scale and scope of stimulus legislation to address the economic crisis caused by the COVID-19 pandemic. Although its final shape remains uncertain, it is highly likely to provide for one or more lending programs, loan guaranty programs, and other financing programs administered by the federal government to direct funding to industries, municipalities and consumers substantially affected by the pandemic.

Such programs are not without precedent and, like other aspects of the government response, are likely to raise issues that have much in common with issues related to the federal government’s efforts to allocate and disburse funds on a broad and rapid scale during the financial crisis in 2008. The centerpiece of that response was the Emergency Economic Stabilization Act, under which the U.S. Secretary of the Treasury purchased preferred stock in over 700 banking organizations in order to recapitalize the U.S. banking industry. Although the recipients of government assistance in the COVID 19 stimulus legislation will not be limited to financial institutions, the financial crisis and the experience of financial institutions that sought and received assistance under EESA may nonetheless be instructive for companies as they consider seeking funding under the programs currently being considered by Congress. The following summarizes key considerations for companies that are interested in requesting funds under the COVID-19 stimulus legislation, reflecting lessons learned from the financial crisis in 2008.