The Fed announced that it would try motivating banks to make loans under the new S.B.A. program.
Congress has dedicated $350 billion to make small business loans as part of the $2 trillion coronavirus support package it passed in March. The effort, known as the Paycheck Protection Program, is intended to encourage banks to lend to companies that agree to keep workers on the payroll. Most — and in some cases, all — of a loan would be forgiven if the borrower retained its workers and didn’t cut their wages. The government would repay lenders for the forgiven portions of the loans.
Companies with 500 or fewer employees can apply, on a first-come-first-serve basis, and banks will give them the short-term funding they need to keep workers on the books and cover expenses as coronavirus quarantines dramatically slow, or entirely stop, their cash flow.
The new Fed effort, which the central bank is rolling out under its emergency lending powers with signoff from Treasury Secretary Steven Mnuchin, addresses concerns raised by banks trying to participate in the program.
Smialek, Jeanna, and Emily Flitter. “Federal Reserve Moves to Pump Up Small Business Lending.” The New York Times, The New York Times, 6 Apr. 2020, www.nytimes.com/2020/04/06/business/economy/federal-reserve-small-business-loans.html.