Fed to purchase emergency coronavirus small-business loans from banks

The Federal Reserve announced Monday it will purchase emergency loans issued by the Small Business Administration (SBA) under the $2 trillion coronavirus economic rescue bill to help banks keep lending to cash-strapped firms.

The Fed will open a facility to purchase SBA loans offered under the Paycheck Protection Plan (PPP), which funds up to $349 billion in forgivable loans to businesses with fewer than 500 employees that are forced to close or restrict operations during the pandemic.

Business owners can apply for PPP loans through banks, credit unions and other lenders as of last Friday. The loans are approved and funded by the federal government, which has already issued $5.4 billion under the program as of Friday.

The new Fed facility will then purchase these loans from banks and lenders, freeing up cash to issue new loans under the SBA program and through conventional lines of credit. 

The Fed’s announcement comes amid concern over the ability of U.S. financial firms and the federal government to handle a massive surge in applications for an unprecedented effort to aid small businesses directly.

The SBA and Treasury Department rolled out the PPP program one week after President Trump signed the bill that created it. Banks and credit unions warned that they had been given late and unclear guidance from the government on how to sort through and process thousands of applications.

Small business advocates also warned that the $349 billion pool of loans would be quickly exhausted by the companies equipped to navigate the backlog, and be insufficient to cover months of lost revenue.

Trump said Sunday on Twitter that he would ask Congress for additional small-business loan funding if the original $349 billion is depleted. The House and Senate are in recess until April 20 but are expected to negotiate another round of coronavirus medical and economic aid.