Federal Reserve Expands Paycheck Protection Program to Add More Lenders

May 1, 2020 by Dan McCue
The Federal Reserve. (Photo by Dan McCue)

WASHINGTON – The Federal Reserve said Thursday it is expanding a program that helps the government provide stimulus loans to small businesses and is designed to keep workers on payrolls during the coronavirus pandemic.

In a brief statement on its website, the central bank said it broadened access to its Paycheck Protection Program Liquidity Facility to additional lenders such as non-depository institutions.

The Fed also widened the collateral that can be pledged.

“The changes will facilitate lending to small businesses via the Small Business Administration’s Paycheck Protection Program,” the statement said.

The Small Business Administration on Monday relaunched its Paycheck Protection Program, which was intended for small businesses to get loans of up to $10 million that convert to grants if a company uses the proceeds to keep workers employed.

The Paycheck Protection Program is doling out an additional $320 billion approved by Congress, after an initial round of $349 billion was exhausted on April 16 after just 13 days.

As a result of the changes made by the Fed, all Paycheck Protection Program lenders approved by the SBA, including non-depository institution lenders, are now eligible to participate in the central bank’s Paycheck Protection Program Liquidity Facility.

SBA-qualified PPP lenders include banks, credit unions, community development financial institutions, members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms.

When the Paycheck Protection Program Liquidity Facility was announced, the Federal Reserve said the facility would immediately lend to depository institutions and that non-depository institutions would be added as soon as possible.

Additionally, eligible borrowers will be able to pledge whole PPP loans that they have purchased as collateral to the PPPLF.

An institution that pledges a purchased PPP loan will need to provide the Reserve Bank with documentation from the SBA demonstrating that the pledging institution is the beneficiary of the SBA guarantee for the loan.

The Trump administration on Thursday limited to $20 million the value of loans that corporate groups can get from the program after outrage over reports that large companies and brand-name chains got funds.

It also laid out criteria allowing non-bank lenders to handle loans to ensure “broad and diverse” lender participation.

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