Fed Renews Pledge To Back PPP Loans

The Federal Reserve Board reassured lenders on Thursday (April 16) that its loan guarantee program to small businesses is alive and well.

Under the Small Business Administration (SBA) Paycheck Protection Program (PPP), the Fed guarantees loans banks extend to small businesses to keep workers on the job. The credit is issued to banks that make PPP loans, who use the loans as collateral.

“Supplying financial institutions with additional liquidity will help increase their capacity to make PPP loans,” the Fed said.

While the Fed does not charge fees, it does collect 35 basis points, or .035 percent, for providing the loan guarantees.

The announcement comes as the SBA bailout has exhausted its $349 billion fund to keep small and medium-sized businesses (SMBs) above water as the COVID-19 pandemic continues to plague the economy. The PPP loans are part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress last month.

Capitol Hill leaders of both parties are working on a second infusion of cash totaling $250 billion. But they are at odds over how it should be distributed.

On Wednesday (April 15), Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza issued a joint statement noting the SBA through the PPP has processed more than 14 years’ worth of loans in less than two weeks.

They asked Congress to provide more funds as America’s small businesses work through a challenging time.

“We urge Congress to appropriate additional funds for this critical and overwhelmingly bipartisan program,” the statement said. “At which point we will once again be able to process loan applications … and protect millions more paychecks.”

The high demand for the cash, Mnuchin and Carranza said, underscores the need for Americans to have access to relief as soon as possible.

“We want every eligible small business to participate and get the resources they need,” they said.