MNI INTERVIEW: Fed Main Street A 'Disaster': Smallbiz Group

Small companies facing insolvency are rejecting Fed Main Street loans and instead seeking unconventional financing like crowdfunding, the chair of the Small Business Roundtable told MNI.

The Fed's Main Street program "really has nothing for Main Street," said Karen Kerrigan, who's also president of the Small Business and Entrepreneurship Council. She often testifies at Congress and meets with federal cabinet members and presidential economic advisers. "People have been calling it an unmitigated disaster."

"The terms really aren't that great and there are strict rules for the banks. It took them a long time to get off the ground and it is just not meeting the needs of small businesses," Kerrigan said in an interview, saying that for example minimum loan amounts are too high. The program has only supported USD472 million in loans to medium-sized businesses as of Aug. 19, well below its USD600 billion capacity.

Kerrigan's assessment is much sharper than that of Fed officials including Boston chief Eric Rosengren who spearheads the program, and who have argued such programs support confidence even if they aren't used often. Earlier on Wednesday, Governor Michelle Bowman said the Fed has never made these kinds of loans before and is seeking feedback on how to improve the program.

'Carnage Out There'

Kerrigan agrees in full with Bowman's view that "many businesses will continue to fight for survival in the months ahead," adding that almost half of 30 million small firms teeter on the edge. Many need credit to pay for the cost of new operating procedures or the shift to selling products online.

"There is going to be carnage out there as millions of small businesses are grinding it out. Some are doing really well in the right industries, but a lot of people are hurting," Kerrigan said. That's even with expectations improving since April and May where many small businesses now see "light at the end of the tunnel."

"The two biggest needs small businesses have now are demand and access to capital," Kerrigan said. "The number of those who need capital has only increased as they've burned through PPP," and could grow to more than 75% of such firms.

The Paycheck Protection Program makes loans that turn into grants if businesses retain employees, and has provided USD525 billion through 5.2 million loans. Another USD134 billion in funds are left over as the program expired Aug. 8. Ideally Congress would bring another round of business relief including grants or an expansion of the PPP, she said.

The Small Business Administration's Economic Injury Disaster Loans have provided greater relief with USD184 billion through 3.5 million loans, she said. Those loans are more popular than Main Street financing with 30-year loan terms, low interest rates and greater flexibility, Kerrigan said.

Creative Capital

With aid from banks becoming more difficult, some small businesses are seeking other avenues including equity and debt crowdfunding schemes, Kerrigan said. "There are innovative funding ideas out there," she said, "and firms need to get very creative to get capital." Small businesses are pushing the SEC to make temporary changes allowing firms to raise money within 30 days, she said.

Given policy makers quickly rolled out a lot of aid earlier this year including brand new programs, Kerrigan is optimistic Congress may deliver a new package in the next month, including more flexible programs.

"Small businesses create 50% to 60% of the news jobs in this country and they need the growth and the capital to support that going forward," she said.