Fed will buy small-business loans to help coronavirus response
WASHINGTON — The Federal Reserve is creating a facility to provide financing to banks participating in the Small Business Administration’s Paycheck Protection Program.
The Fed's initiative will allow banks to remove PPP loans from their balance sheets in order to issue more loans to small businesses hurt by the coronavirus.
The central bank will announce more details on the new facility later this week, the agency said Monday.
The Paycheck Protection Program is part of the $2.3 trillion stimulus package enacted in response to the coronavirus crisis. The $349 billion initiative will provide government-guaranteed small-business loans of up to two and a half times a company’s monthly payroll, which can be fully forgiven if the funds are used for payroll and certain other purposes.
However, the rollout of the program last week was marred byconfusion as some banks put off lending through the PPP until this week and those that did start lending last Friday had varied eligibility restrictions and were overwhelmed with applications.
The news of the Fed’s facility to buy the small-business loans was first reported by The Wall Street Journal.
If the facility isn't launched in the next few days, banks may stop or slow down their origination of Paycheck Protection loans, Jaret Seiberg, an analyst with Cowen Washington Research Group, said in a note.
"This is not a process that can drag out indefinitely given the demand for Paycheck Protection loans," he said.