WASHINGTON (BRAIN) — The Federal Reserve infused the Paycheck Protection Program and others with $2.3 trillion in loans Thursday to further support small businesses in the wake of the COVID-19 pandemic.
The Small Business Administration's forgivable loan program will be bolstered by the Federal Reserve through supplying liquidity to participating financial institutions with term financing backed by PPP loans to small businesses. Credit will be extended to eligible financial institutions that originate PPP loans, taking them as collateral at face value.
This comes on the heels of Thursday's report that 16.8 million Americans have filed for unemployment over the past three weeks.
The PPP went online April 3 and authorized up to $349 billion in forgivable loans to small businesses with fewer than 500 employees. However, snags occurred because final Treasury Department guidance went out late on April 2 and combined with application issues to hinder the process.
SBA lead lender relations specialist Steve White said Tuesday during a PeopleForBikes COVID-19 webinar for retailers seeking loan information that patience is needed during the PPP rollout.
The Federal Reserve's action could help.
"Our country's highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus," said Federal Reserve Board Chair Jerome H. Powell in a news release. "The Fed's role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible."
Other benefits of the action, according to the Federal Reserve:
- Ensures credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the new Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act will provide $75 billion in equity to the facility.
- Increases the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities as well as the Term Asset-Backed Securities Loan Facility. These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury.
- Helps state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.
The PPP was created as an employee retention program. The loan amount will be forgiven if:
- The loan proceeds are used to cover payroll costs and most mortgage interest, rent, and utility costs over the eight-week period after the loan is made.
- Employee and compensation levels are maintained. Payroll is capped at $100,000 on an annual basis for each employee. Due to likely high subscription, it's anticipated that not more than 25% of the forgiven amount will be for non-payroll costs.
- Loan payments will be deferred for six months.
Current SBA loan holders are eligible to have their next six months of payments erased as part of its Small Business Debt Relief Program. The SBA will make those payments, retroactive to March 27.
In addition to the PPP, low-interest and long-term direct federal loan programs are available through the SBA. PeopleForBikes lists programs and resources for retailers on its website.
