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The Fed steps in to finance COVID-19 relief loans for small businesses

Marielle Segarra Apr 7, 2020
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The central bank is finding new ways for it to finance the loans commercial banks are being told to write to small businesses. Olivier Douliery/AFP via Getty Images
COVID-19

The Fed steps in to finance COVID-19 relief loans for small businesses

Marielle Segarra Apr 7, 2020
The central bank is finding new ways for it to finance the loans commercial banks are being told to write to small businesses. Olivier Douliery/AFP via Getty Images
HTML EMBED:
COPY

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.

COVID-19 Economy FAQs

So what’s up with “Zoom fatigue”?

It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.

How are Americans spending their money these days?

Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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