The Fed steps in to finance COVID-19 relief loans for small businesses
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The Federal Reserve has announced that it will finance loans that are made by commercial banks to small businesses as part of the government’s new $350 billion payroll lending program, part of the broader congressional stimulus package.
The point of the loans, which are guaranteed by the Small Business Administration, is to help small businesses keep people on payrolls during this crisis.
The problem is, you still need banks to actually issue the money. And banks — especially small, community ones — only have so much cash on hand to lend.
So, now the Fed is creating a “lending facility” to keep things running smoothly, which could mean buying the loans from banks or lending money to the banks directly.
For a lot of reasons, it has not been easy for small businesses to get these loans. Banks have been overwhelmed by applications. The SBA’s loan-processing system actually stopped working Monday for several hours.
These small businesses — restaurants, bars and stores — have been forced to close. They can’t pay their workers, which means more people unemployed, and more people who feel less comfortable spending money. Things just spiral from there and that’s why the Fed is stepping in.
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