“The economic disruption and uncertainty created by Covid-19 has created challenges for the commercial paper market, constraining access to short-term credit for American businesses,” US Secretary of Treasury Steven Mnuchin announced on March 17, 2020.
“By providing short-term credit, the [facility] will help American businesses manage their finances through this challenging period.”
Commercial paper is a form a short-term debt that businesses can use to finance their near-term goals like covering payroll, stocking up on inventory, paying upcoming bills, and other expenses. The last time the Federal Reserve took this measure to combat economic pressures was during the 2008 Great Recession.
While only time will tell how effective this step will be for the survival rate of American businesses, it will certainly prove useful to the thousands of business owners who are struggling to make ends meet during this coronavirus outbreak. The commercial paper funding facility will purchase commercial paper from qualified companies spanning across multiple industries – not only banks. This will end up helping countless businesses keep their heads above the water as the impact of coronavirus continues to take its toll on the economy at large.