COVID-19

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:
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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.

COVID-19 Economy FAQs

New COVID-19 cases and deaths in the U.S. are on the rise. How are Americans reacting?

Johns Hopkins University reports the seven-day average of new cases hit 68,767 on Sunday  — a record — eclipsing the previous record hit in late July during the second, summer wave of infection. A funny thing is happening with consumers though: Even as COVID-19 cases rise, Americans don’t appear to be shying away from stepping indoors to shop or eat or exercise. Morning Consult asked consumers how comfortable they feel going out to eat, to the shopping mall or on a vacation. And their willingness has been rising. Surveys find consumers’ attitudes vary by age and income, and by political affiliation, said Chris Jackson, who heads up polling at Ipsos.

How many people are flying? Has traveled picked up?

Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.

How are Americans feeling about their finances?

Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.

Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.

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