Trillions in stimulus funding start rolling out for businesses. Here’s what’s in it
The Federal Reserve is rolling out up to $2.3 trillion in stimulus funds to try to prop up businesses and local governments through the coronavirus pandemic. The funding also includes money for a new Paycheck Protection Program to help small businesses hold onto employees instead of laying them off.
The details on the central bank’s plans came out the same day as new data that shows 6.6 million Americans applied for unemployment benefits for the first time last week. Congress already approved funding for the programs in the latest stimulus package.
“The combination of these facilities will provide up to $2.3 trillion in new financing to support American workers by helping American businesses preserve jobs, sustain operations, and continue to serve their customers,” Treasury Secretary Steve Mnuchin said in a statement Thursday.
“Many of the programs we are undertaking to support the flow of credit rely on emergency lending powers that are available only in very unusual circumstances,” Fed Chair Jerome Powell said in a speech Thursday, Bloomberg News reports.
“I would stress that these are lending powers, not spending powers. The Fed is not authorized to grant money to particular beneficiaries,” Powell said in the speech at the Brookings Institute after the new programs were unveiled, according to Bloomberg.
The Federal Reserve is creating two new programs, the Main Street Business Lending Program and a Municipal Liquidity Facility, and sending hundreds of billions to the Small Business Administration’s Paycheck Protection Program.
What’s the Paycheck Protection Program?
The Small Business Administration created the Paycheck Protection Program as part of Congress’s new stimulus package. The program aims to give loans to small businesses that promise to keep their employees on through the coronavirus crisis.
“SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities,” the SBA said.
In order for the SBA to forgive the payroll loans, it says at least three-quarters of the amount has to be used to pay workers.
“Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease,” the SBA said.
The program will have $350 billion available to help small businesses keep people on payroll, according to the Treasury Department.
The Federal Reserve is backing the banks that make the payroll loans: “The PPP provides loans to small businesses so that they can keep their workers on the payroll. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.”
Main Street Business Lending Program
The new Main Street Business Lending Program will make $600 billion available for loans to medium-size businesses, the Fed said.
“The Main Street Business Lending Program will make a significant difference for the 40,000 medium-sized businesses that employ 35 million Americans,” Mnuchin said in a statement.
“This important Main Street initiative complements the robust relief efforts already underway such as the Paycheck Protection Program, Employee Retention Credits, and Economic Impact Payments, while protecting taxpayer funds,” the Treasury secretary said.
The central bank gave more details: “The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion.”
The medium-size businesses will be allowed to borrow between $1 million and $150 million, according to Bloomberg. Principal and interest payments on the loans will be deferred by one year, the Fed said.
Money for cities
The Federal Reserve is also making up to $500 billion in loans available to states and cities to help local governments weather the coronavirus crisis with the new Municipal Liquidity Facility.
The loans are intended to help states, counties and cities that may not have enough money because tax filings have been delayed and revenue is down because people are staying home instead of going out, buying things and paying local sales taxes.
State and local governments can sell bonds directly to the Municipal Liquidity Facility ”to obtain the funds they need quickly and efficiently,” the Treasury Department said.
This story was originally published April 9, 2020 at 2:40 PM with the headline "Trillions in stimulus funding start rolling out for businesses. Here’s what’s in it."
