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April 7, 2020Blog Posts

Fed to Provide Financing for Small-Business Stimulus Loans

Bloomberg

The Federal Reserve said it will create a program to help speed the flow of funds to small companies through the government’s coronavirus stimulus, marking its latest step to shield the U.S. economy from the pandemic.

The facility will provide term financing to banks against loans issued under the Small Business Administration’s Paycheck Protection Program, the Fed said in a brief statement.

The $349 billion program is a centerpiece to the $2.2 trillion legislation that President Donald Trump signed into law March 23. Under the program, banks provide loans to small businesses to cover payroll, rent and utilities for up to eight weeks. The loans convert to grants if the firms retain or rehire their workers.

The program has been slow to get moving. Banks and non-bank lenders since last week have voiced concerns to the Treasury about holding loans for seven weeks before they can be purchased by the government. Community banks have said they lack the liquidity to continue making loans to small businesses under such a delay.

The Fed’s move would help bridge that gap by lending to the banks and accepting the PPP loans as collateral.

The Fed said it would announce additional details later this week.

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