In a historic move to bolster the COVID-19 economy, on April 6, 2020, the Federal Reserve announced a new program to purchase Paycheck Protection Program (“PPP”) loans extended by lenders to small businesses seeking to cope with the fallout of the coronavirus pandemic. In a brief announcement, the Federal Reserve stated “to facilitate lending to small businesses via the Small Business Administration’s Paycheck Protection Program, the Federal Reserve will establish a facility to provide term financing backed by PPP loans. Additional details will be announced this week.”
The Federal Reserve’s decision represents $350 billion in guaranteed cash to banks extending PPP loans to support the economy. While the primary goal is to support struggling businesses, there is a more subtle goal at play. By establishing the PPP purchasing fund, the Federal Reserve is enticing lenders to quickly deploy PPP loans, which many larger institutions may not find lucrative enough to implement with the speed necessary to support the needs of business owners. In short, by guaranteeing cash payment for PPP loans, the Federal Reserve has deftly presented banks with an opportunity to realize low-risk cash generation if they act quickly.
As lenders seek to implement PPP lending, Friedman Schuman, P.C. remains prepared to serve our clients’ needs during this unprecedented time.
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