The Fed will start buying debt backed by emergency small-business loans - giving banks more leeway to offer critical aid

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The Fed will start buying debt backed by emergency small-business loans - giving banks more leeway to offer critical aid

Federal reserve

Reuters

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  • The Federal Reserve announced Monday it will begin buying debt backed by the Small Business Administration's Payroll Protection Program.
  • The facility will create a new market for the SBA loans and allow lenders to shore up cash for additional aid.
  • PPP loans are meant to cover roughly two months' worth of payroll and business expenses, and accounted for roughly $350 billion of the government's $2 trillion stimulus package.
  • Additional details on the facility will be announced later in the week, the Fed said in a statement.
  • Visit the Business Insider homepage for more stories.

The Federal Reserve announced Monday it will begin purchasing debt backed by the government's emergency small-business loans.

The purchase program creates a new market for the debt and allows banks to shore up more cash for additional relief lending. The Small Business Administration's Payroll Protection Program loans accounted for roughly $350 billion of the government's $2 trillion relief measure.

PPP loans are meant to cover roughly two months of payroll and business expenses amid the coronavirus pandemic and related economic shutdown. The loans can be forgiven if participating firms maintain their current workforce.

Read more: A stock chief at $7.4 trillion BlackRock shared with us his coronavirus-investing playbook: How to keep money safe, what he's avoiding, and some surprising contrarian bets

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The program will "facilitate lending to small businesses" beyond the current level seen since applications for PPP loans opened on Friday, the bank said.

The Wall Street Journal first reported the new Fed program. Additional details on the facility will be announced later in the week, the Fed said.

Banks have pressured the White House to create such a program to ease lending conditions and form a new buyer for the debt, The Journal reported. The Fed will work alongside the Treasury Department to create the program.

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