As PPP loans are fully guaranteed by the SBA, the PPPLF takes the PPP loans as collateral at face value. The terms of the PPPLF that provide support to the PPP include the following:
- The PPPLF provides complete, risk-free, matched-maturity funding for pledged PPP loans.
- PPP lenders may obtain PPPLF funding for whole PPP loans that they have purchased as well as those that they originated.
- For banks, PPP loans receive a 0 percent risk weight under risk-based capital rules, and PPP loans that are pledged to the PPPLF are excluded from leverage ratio calculations. 2
PPPLF program usage
As shown in table A, the PPPLF has been the most heavily used of the emergency lending facilities established by the Federal Reserve to support the continued flow of credit to households, businesses, and state and local governments during the pandemic. 3 More than 850 PPP lenders-from all 50 states and the District of Columbia and including almost 70 nonbanks-have taken out PPPLF advances. For lenders that have not participated in the PPPLF, the existence of the facility may have provided comfort in continuing to make PPP loans with the knowledge that funding is available if needed. Continue reading “Under the PPPLF, the Federal Reserve provides nonrecourse advances to PPP lenders that pledge PPP loans”