Fed opens Paycheck Protection Program Liquidity Facility to non-depositories; purchased PPP loans can be collateral

The Federal Reserve’s liquidity facility to support lending through the Small Business Administration (SBA) Paycheck Protection Program (PPP) will be available to more lenders and now will also take purchased PPP loans as collateral, the Fed announced Thursday.

The changes mean that all PPP lenders approved by the SBA, including non-depository institution lenders, are now eligible to participate in the Paycheck Protection Program Liquidity Facility (PPPLF), the Fed said. SBA-qualified PPP lenders include banks, credit unions, community development financial institutions (CDFIs), members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms.

The Fed said eliglble borrowers will be able to pledge whole PPP loans that they have purchased as collateral to the PPPLF. “An institution that pledges a purchased PPP loan will need to provide the Reserve Bank with documentation from the SBA demonstrating that the pledging institution is the beneficiary of the SBA guarantee for the loan,” the Fed said.

The PPPLF opened in mid-April and immediately admitted depository institution lenders. It soon followed up with an announcement that non-depository institutions would be added.

The SBA’s PPP, created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), guarantees loans from qualified lenders to small businesses so that those businesses can keep workers employed. The PPPLF supports the PPP by extending credit to financial institutions that make or purchase PPP loans, using the loans as collateral. “The additional liquidity from the PPPLF increases the capacity of financial institutions to make additional PPP loans,” the Fed noted.

Federal Reserve expands access to its Paycheck Protection Program Liquidity Facility (PPPLF) to additional lenders, and expands the collateral that can be pledged