Fed to buy small business loans to help fight coronavirus

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WASHINGTON – The Federal Reserve is in the process of 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 make more loans to small businesses affected by the coronavirus.

The central bank will announce more details on the new facility later this week, the agency said on Monday.

The paycheck protection program is part of the $ 2.3 trillion stimulus package adopted in response to the coronavirus crisis. The $ 349 billion initiative will provide government guaranteed small business loans up to two and a half times a company’s monthly payroll, which can be written off entirely if the funds are used for payroll and other purposes.

The Fed’s initiative will allow banks to remove PPP loans from their balance sheets in order to make more loans to small businesses affected by the coronavirus.

Bloomberg News

However, the roll-out of the program last week was marred by confusion, as some banks postponed lending through PPP until this week and those that started lending last Friday had various eligibility restrictions and were inundated with loans. requests.

News of the Fed’s ease in purchasing small business loans was first reported by the Wall Street Journal.

If the facility is not launched in the next few days, banks could halt or slow down their Paycheck Protection lending, Cowen Washington Research Group analyst Jaret Seiberg said in a note.

“This is not a process that can go on indefinitely given the demand for Paycheck Protection loans,” he said.

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