October 21, 2020

PPP round 2 could do a lot to support small business, Fed chair Powell says

Federal Reserve Chair Jerome Powell said another iteration of the Paycheck Protection Program is likely the best way to continue supporting small businesses suffering as a result of the coronavirus pandemic.

When asked during a hearing before a House subcommittee on Wednesday whether the Main Street Lending Program could be modified to help smaller businesses, Powell said the Paycheck Protection Program would be a better way of reaching these companies.

The Fed would encounter difficulties trying to underwrite the credit for a large number of very small businesses, according to the Fed chair.

Powell told lawmakers that it is not practical for the Fed to create a facility for small businesses and that PPP could continue to do “a lot of good,” since it may take longer than officials initially thought for some small- and medium-sized business to come back online.

The minimum loan threshold for the facility is $250,000.

WHAT IS THE FED’S MAIN STREET LENDING PROGRAM?

U.S. Treasury Secretary Steven Mnuchin said he would be “fine” lowering that threshold to $100,000 during testimony on Tuesday, but Powell noted there is very limited demand in the facility below $1 million.

The Main Street Lending Program, announced in April, acts as a complement to the Small Business Administration’s Paycheck Protection Program in some ways, by helping to provide loans to companies that might be too large to take advantage of PPP funding, but too small to access credit through capital markets.

The central bank is not issuing loans, but encourages lending among local banks to businesses by buying back the majority of the loan from the bank – about 95% – thereby assuming the risk.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

As previously reported by FOX Business, Republicans have proposed a more targeted second round of PPP loans intended to help businesses that have been most severely impacted by the pandemic.

A proposal in July called for $190 billion worth of PPP funding to be made available to business owners with 300 employees or fewer whose revenue declined by at least 50% as a result of the coronavirus pandemic.

However, lawmakers have been unable to reach an agreement on an additional stimulus package.

During the first round, the Small Business Administration said more than 5.2 million loans were approved, valued at a cumulative $525 billion.

CLICK HERE TO READ MORE ON FOX BUSINESS

FOX Business’ Jennifer Schonberger contributed to this report.

Source Article