Fed Again Eases Terms for Main Street Lending Program
By Nick Timiraos
The Federal Reserve announced Friday its latest round of changes
to boost participation in its $600 billion lending effort targeting
small and midsize businesses amid difficulty by Congress and the
White House in reaching agreement on a new round of relief
The Main Street Lending Program, which is jointly run with the
Treasury Department, has seen muted demand from borrowers and banks
and is designed to encourage more lending to businesses that were
in a solid financial condition before the coronavirus pandemic hit
this year. Under the program, the Fed will purchase 95% of eligible
loans made by banks.
Friday's changes reduced, for the third time, the minimum loan
amount under the program -- to $100,000, from $250,000. The loan
amounts had earlier been lowered from $1 million to $500,000 and
then from $500,000 to $250,000. The changes also revamped the fees
banks can charge borrowers to encourage greater production of
The Fed and Treasury also updated guidance to banks that will
allow borrowers to exclude Paycheck Protection Program loans of up
to $2 million under certain circumstances when determining the
maximum loan amount under the Main Street Lending Program.
The program offers five-year loans to qualified businesses and
nonprofits with deferred principal and interest payments. So far,
the program has made nearly 400 loans totaling $3.7 billion, the
Fed said Friday.
Fed officials have warned that the economy will face a more
uneven and difficult recovery without additional direct aid to
individuals, businesses and governments that have faced lost income
due to the pandemic. But Republicans and Democrats have been unable
to reach agreement on how much more money to spend to combat the
fallout from the virus.
At a congressional hearing last month, lawmakers pressed Fed
Chairman Jerome Powell and Treasury Secretary Steven Mnuchin to
commit to lowering the minimum loan amount under the program. Mr.
Mnuchin signaled support for such a step. But Mr. Powell said the
program wasn't particularly well suited for very small loans, and
he suggested Congress would be better off providing additional
relief similar to the PPP, which offered loans to small businesses
that can be forgiven.
"There's very little demand in the facility below $1 million,"
said Mr. Powell. The types of loans offered under the PPP offer "a
better way to approach these [businesses]. Trying to underwrite the
credit of hundreds of thousands of very small businesses, it would
be very difficult."
Mr. Powell has said muted demand for Main Street loans could
reflect improving credit conditions for solvent businesses, and he
has suggested especially hard-hit businesses might be reluctant to
take on additional debt, requiring help that the Fed isn't well
suited to provide.
"It's really a facility for companies or borrowers that don't
have access to 'regular way' borrowing now," Mr. Powell said at a
news conference last month. Some borrowers "may be in a situation
where their business is still relatively shut down, and they won't
be able to service a loan, and so they may need more fiscal
(END) Dow Jones Newswires
October 30, 2020 11:16 ET (15:16 GMT)
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