Federal Reserve Creates Loan Facility For SBA Loans
The Federal Reserve is in the process of creating a loan facility to fund loans to small businesses through the Small Business Administration (SBA) Paycheck Protection Program.
The Fed has said it will specifically offer term financing backed by SBA loans to lenders. The plan aims to keep the flow of loans to small businesses.
the $ 2 trillion stimulus bill allocated $ 350 billion in fully government guaranteed loans which are intended to help struggling small businesses keep their employees on the payroll and cover other costs such as rent during the period Coronavirus pandemic.
The Fed’s announcement means the agency will buy back small business loans from lenders’ balance sheets, freeing up more lending capacity and providing the liquidity needed to make those loans.
Essentially, the Fed acts the same as a government sponsored entity that buys mortgages on lenders’ balance sheets so that those lenders can then make more mortgages.
This will be especially useful for small lenders who are not used to seeing this type of request. For example, according to The Wall Street Journal, First bank in Hamilton, New Jersey, has already received more than 500 SBA loan applications, about a hundred times its usual load for a year.
The paycheck protection program was launched on Friday and lenders were immediately subjected to requests from small businesses in need. According to Newspaper, the SBA on Monday processed 124,000 loans from more than 2,300 lenders for a total of about $ 36 billion.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.