The Federal Reserve recently announced that it will extend — for a final time — the Paycheck Protection Program Liquidity Facility, a key component of financial lifelines extended to cash-strapped small businesses hit by COVID-19.
The PPPLF, which allows continued distribution of low cost loans through the PPP to small businesses, was originally set to expire this week, but will now run through the end of July.
The news likely comes as a relief to independent entrepreneurs who, despite the post-pandemic boom, are still struggling to make ends meet. It also helps financial institutions provide needed services to small businesses.
“It just gives [banks] a little bit more time to make that request for funds,” Randell Leach, CEO of Beneficial State Bank said in a recent interview.
The PPP started under the CARES Act in March, and it was intended to prioritize businesses with 500 employees or less. However, many needy small businesses found themselves out in the cold as massive demand — and more than a little fraud — swamped the program.
The Small Business Administration (SBA) responded by revising the guidelines, which led to more businesses in socially and economically disadvantaged areas getting loans in subsequent rounds of funding.
“There was a lot of work that was done to try to make some adjustments to improve the access,” Leach added. “They made it more accessible for micro businesses, smaller entrepreneurs to be able to get access and not just get denied.”
While PPP loans were set to expire at the end of this month, the Fed’s liquidity facility will allow banks and community institutions to continue pledging PPP loans as collateral to the central bank through July 30.
The extension will help small businesses receive aid, and allow banks to not worry about taking on the risks associated with giving out loans themselves. The maturities of the advances can have terms up to five years, which means the Federal Reserve will continue to support the program through 2026.
“This is always a good thing because at the very beginning, the businesses who are applying for it and submitting it typically were businesses with a lot of resources,” Andrew McDowell, CEO of With Love Market & Cafe told Yahoo Finance this week.
Disparities abound
According to a fact sheet, all lenders that are eligible to originate PPP loans are eligible to borrow under the liquidity facility.
Yet in Los Angeles, businesses in more affluent areas of the city received loans at twice the rate of businesses in majority-Latino areas, according to a review of data by the Center for Investigative Reporting. That was one and a half times the rate of businesses in majority-Black areas, and 1.2 times the rate in Asian areas.
Those disparities were visible across the country. That's why Beneficial State Bank, a Community Development Financial Institution (CDIF), was committed to financial inclusion and economic development among underserved communities. They also partnered with other nonprofit organizations that were non-bank lenders to help address access and hesitancy.
“If entrepreneurs had their wealth wiped out, [who’s] going to support that key part of our economy to be able to help them rebuild because that's truly the engine,” Leach said.
“That’s where folks need to be really focusing their effort. We’re certainly thinking about that,” he added.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
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