In connection with a number of announcements today, the Board of Governors of the Federal Reserve System (Federal Reserve) announced the Paycheck Protection Program Lending Facility (PPP Facility), which is authorized under section 13(3) of the Federal Reserve Act. The PPP Facility is intended to facilitate lending by eligible financial institutions to small businesses under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Under the PPP Facility, the Federal Reserve Banks will lend to eligible borrowers (i.e., financial institutions) on a non-recourse basis, taking PPP loans as collateral at face value. The PPP Facility is intended to bolster the effectiveness of the PPP by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. Under the announced terms, the extension of credit under the PPP Facility will be made at a rate of 35 basis points, which contrasts with the 100 basis point PPP loans currently eligible to be issued by eligible lenders to small businesses under the PPP. The principal amount and maturity date of an extension of credit under the PPP Facility will be equal to the corresponding principal amount and maturity date of the PPP loan pledged as collateral to secure the extension of credit to the financial institution. There are no fees associated with the PPP Facility.
The Federal Reserve has made a term sheet available on its website (last visited April 9, 2020) that summarizes current terms of the PPP Facility. As noted in the Federal Reserve’s release, the Federal Reserve and U.S. Treasury may make further adjustments to the published term sheet and related aspects of the facility. Interested parties are encouraged to check the Federal Reserve’s website for the most recent updates to the PPP Facility.