The facility is expected to increase funding and liquidity for the program and should allow lenders to move PPP loans off their balance sheets.

By Alan W. Avery and Pia Naib

On April 6, 2020, the Federal Reserve announced its intention to facilitate lending to small businesses that receive a loan pursuant to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) by establishing a facility to provide term financing backed by PPP loans.

The PPP is one of the SBA’s primary programs for providing financial assistance to small businesses, and Title I of the CARES Act includes a US$349 billion package for loans established pursuant to the PPP through December 31, 2020. Such loans would be 100% guaranteed by the federal government through December 31, 2020, and are subject to loan forgiveness up to the entire loan amount subject to certain restrictions.

The Federal Reserve’s facility is expected to ensure that PPP lenders have access to sufficient funding and liquidity to fund the large volume of PPP loans and perhaps provide lenders with the opportunity to move such loans off their balance sheets. The Federal Reserve will provide additional details regarding the PPP facility this week.