Fed Plans New Facility For SMB PPP Loans

The Federal Reserve is collaborating with the Treasury Department to develop a new facility to help small and medium-sized businesses (SMBs) stay afloat as the coronavirus pandemic continues, according to a report in the Wall Street Journal (WSJ).

Lenders had said that they could extend more Paycheck Protection Program loans (PPP) if the government devises a way to buy the loans from originators. By taking loans off bank balance sheets, an increased number of smaller banks could participate.

The new facility — which will be announced by the Fed this week — will enable lenders to extend additional loans backed by the Small Business Administration (SBA). The PPP is part of the $2.2 trillion relief program intended to help households and businesses pay bills while the country and much of the world is on lockdown. 

“To facilitate lending to small businesses via the Small Business Administration’s Paycheck Protection Program, the Federal Reserve will establish a facility to provide term financing backed by PPP loans. Additional details will be announced this week,” the Fed said in a statement on Monday (April 6).

PPP loans are intended to help SMBs meet payroll obligations and other necessary overhead for 60 days. Some loans will be forgiven as long as the borrowing businesses don’t lay anyone off. 

The extension of the program will operate in a manner akin to how the government works with mortgage agencies like Fannie Mae and Freddie Mac. 

“This concept works well in the American mortgage market and should be replicated to meet program loan demand in this crisis,” Rebecca Romero Rainey, the president of the Independent Community Bankers of America, said in a letter Sunday to Treasury Secretary Steven Mnuchin. “This program should not be limited by the balance sheet capacity of participating lenders.

The Fed is also working on a Main Street Lending Facility that is anticipated to help businesses with 500 to 10,000 employees. Six facilities have been introduced by the Fed since the pandemic took hold of the country last month.

In another measure to help contain COVID-19, the Fed is planning to print new money that will not have come into contact with the virus.