The Federal Reserve said it will set up a new programme to purchase loans made by banks under a government plan to shore up small businesses hit by the coronavirus pandemic.
In a statement on Wednesday, the US central bank said it was establishing a “facility to provide term financing backed by” loans made through the Paycheck Protection Program (PPP), a $350bn fund to help small business, which was a key plank of a $2tn fiscal stimulus package passed by Congress this month.
The Fed said additional details will be provided this week. The move by the Fed could help boost participation in the small business lending plan by the largest US banks, which have lagged behind smaller community banks in extending loans.
The Fed’s support through the secondary market will help move the government-backed loans quickly off the balance sheets of financial institutions, which could make it more attractive for the banks.
The Fed’s intervention to support the small-business lending fund comes in addition to the role it will already have in a larger stimulus scheme worth $454bn, which will provide loans and loan guarantees to bigger companies across corporate America hurt by the coronavirus outbreak.
Since the crisis started, Jay Powell, the Fed chairman, has been working closely with Steven Mnuchin, the US Treasury secretary, in coordinating the economic policy response to the crisis.
The small business lending plan was launched by the US Treasury and the Small Business Administration on Friday. Larry Kudlow, the director of the White House National Economic Council, said on Monday that 130,000 loans had already been extended through it, with commitments worth $38bn.
“It got off to a terrific start,” Mr Kudlow told CNBC.
But with revenue dropping steeply for many small businesses across the country, demand for government help is far greater, and some borrowers have struggled to gain access to the funds.
Several large banks delayed the launch of their participation in the scheme as they sought clarity from the Trump administration on the terms of the loans they would be making, and initially restricted the credit to existing customers, narrowing the range of small businesses that could benefit.
On Capitol Hill, lawmakers have grown increasingly impatient with the slow rollout of the small business lending plan, as their offices have been flooded with complaints from people claiming that they could not benefit from it.
Even some Republican lawmakers have spoken out. Rick Scott, a Republican senator from Florida, sent a letter to Mr Mnuchin and Jovita Carranza, the head of the SBA, on Sunday, saying he had received reports of small businesses who were “simply unable” to begin applying for loans from their financial institutions.
“Some financial institutions appear to be requiring unrelated products to apply for a loan, and other small business owners reported getting conflicting information as to when and how they could start their applications,” Mr Scott said, adding that lenders had “expressed significant concerns with the lack of guidance”.
Source: Economy - ft.com
