The Federal Reserve announced on Thursday, April 9, 2020 that it will inject about $2.3 trillion into the economy through a variety of lending programs, including bolstering the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.
Federal Reserve Chairman Jerome Powell said in a statement, “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”
A press release issued by the Fed said the program will:
- extend credit through the Paycheck Protection Program Liquidity Facility (PPPLF) to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value;
- buy up to $600 billion in loans through its Main Street Lending Facility to ensure credit flows to small and mid-sized businesses;
- increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury;
- establish a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act; and
- receive support from the US Treasury through $195 billion in credit protection.
The Main Street Lending Facility will:
- be open to companies of all sizes, but they must have fewer than 10,000 workers or revenue of less than $2.5 billion
- offer up to 4-year loans
- give an interest rate equal to the Fed’s Secure Overnight Financing Rate, currently 0.01%, plus 250-400 basis points
- defer principal and interest on these loans for one year
- be open to borrowers who have already taken PPP loans
- have banks maintain a 5% share of these loans, selling the remaining 95% back to the Main Street Lending Facility
Businesses seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. More information on the Main Street Lending Program can be found here (new loan facility) and here (expanded loan facility).
We will continue to keep you updated as this new program develops.