The U.S. Government has introduced the CARES Act to provide the resources needed to fight COVID-19 and prevent a severe economic downturn.
The COVID-19 pandemic has created an unprecedented economic and operational crisis across the whole of the United States. As a result, the U.S. Government has developed a response in the form of the US$2 trillion CARES Act to provide the health care resources needed to fight COVID-19 and prevent a severe economic downturn through various measures.
The CARES Act is designed to provide broad-based economic relief and support to all sectors of the economy — consumers, small businesses, middle-market companies and large corporations — as well as provide emergency appropriations to medical organizations and agencies struggling with the health and safety impacts of the coronavirus itself.
The proposed act includes payments to the unemployed, assistance for workers and their families, economic stabilization for heavily impacted industries such as manufacturing, retail and hospitality, and much more. It includes a wide range of tools, such as grants, loans, regulatory relief and forbearance.
In short, it will eventually touch just about every part of American society.
Key lessons from 2008
There are three critical lessons from the economic stimulus of 2008 that business leaders today must consider:
- First, accessing stimulus funding is very complicated. Once a stimulus package becomes law, it takes time to determine who is eligible for the various programs, how funds will be distributed and what requirements are in place for those companies that do participate. Those rules are fluid, and the agencies involved are rarely staffed and prepared to act quickly.
- Second, there are always strings attached to federal assistance, and for some companies, those requirements may be too onerous. For example, companies will be required to set up reporting procedures to allow government oversight. Some programs could even require companies to change internal policies or grant access to sensitive information. Just as important, specific requirements may not be known at the outset of the program.
- Finally, the government may make significant public disclosure of who has accepted funding and whether those funds were spent for the benefit of the US taxpayer. Accountability is critical, and companies must put processes in place to carefully monitor expenditures.
In short, companies that are considering participation in CARES Act assistance programs should have a strong grasp on their immediate liquidity needs and identify other available funding options for comparison.
Because of the requirements related to participation, and the potential for reputational risk, the full attention of senior leadership is required before a company decides on a CARES Act strategy. Participation in a CARES Act relief plan may be extremely beneficial to the company’s short- and medium-term position, but the decision should be made with full awareness of the program’s strengths and weaknesses.
Steps to take today
In the meantime, companies should establish a crisis management team or project management office that is focused on assessing liquidity and cash needs; implementing a dynamic risk management plan; and determining remote close financial procedures.
From there, the leadership team should be performing cash and working capital forecasting; identifying operational crisis impacts, such as supply chain issues; and developing and implementing resiliency plans.
Once the CARES Act is in place, companies can begin to assess the impact of the legislation and other governmental actions, and better understand the potential benefits and risks of participation.
Today, companies are reacting — as quickly as possible — to reduce operational expenses and cut capital spending, including employee downsizing and furloughs. But just as quickly, effective leaders will pivot to determining next steps and begin reimagining, and reshaping, their post-coronavirus organizations.