MNI POLICY: Fed Loosens Main Street Loan Terms After Criticism

The Federal Reserve on Friday expanded access to its Main Street Lending Program, following months of complaints from business owners and lawmakers that it was too restrictive.

The minimum loan now will be USD100,000, compared with USD250,000 previously, and fees have been adjusted to encourage the provision of smaller loans.

The Fed and the Treasury Department also clarified that Paycheck Protection Program loans of up to USD2 million may be excluded for purposes of determining the maximum loan size.

The Fed has been facing growing calls to broaden access to its Main Street facility including from Capitol Hill and small businesses as the risk of a K-shaped recovery which sees big companies survive while smaller businesses fold.

To date, the Main Street program has made almost 400 loans totaling USD3.7 billion, versus resources from the Fed and Treasury that could backstop USD600 billion in lending.

The Fed in June extended the repayment period from four years to five years and delayed the repayment period to two years from the original one year. Interest also is delayed for one year and will be Libor, a commonly used overnight lending rate, plus 3%.
Lenders will now assume just 5% of the loans, with the Fed holding the rest.

The program is part of close to a dozen measures the central bank has taken to boost lending and liquidity during the coronavirus crisis. Powell has repeatedly stressed that the Fed has "lending but not spending" powers. Main Street and other similar programs are being backstopped by Treasury money that the Fed can leverage up.