MNI POLICY: TEXT: Fed Expands Main Street Lending Program

By Greg Quinn

     WASHINGTON (MNI) - The Federal Reserve Board on Thursday announced it is

expanding the scope and eligibility for the Main Street Lending Program. As part

of its broad effort to support the economy, the Federal Reserve developed the

Main Street Lending Program to help credit flow to small and medium-sized

businesses that were in sound financial condition before the pandemic. 

     When the initial terms of Main Street were announced, the Board indicated

that, because the financial needs of businesses vary widely, it was seeking

feedback from the public on potential refinements. More than 2,200 letters from

individuals, businesses, and nonprofits were received. In response to the public

input, the Board decided to expand the loan options available to businesses, and

increased the maximum size of businesses that are eligible for support under the

program. The changes include: 

     *Creating a third loan option, with increased risk sharing by lenders for

borrowers with greater leverage; 

*Lowering the minimum loan size for certain loans to $500,000; and 

*Expanding the pool of businesses eligible to borrow. 

     Under the new loan option, lenders would retain a 15 percent share on loans

that when added to existing debt do not exceed six times a borrower's income,

adjusted for interest payments, taxes, and depreciation and other appropriate

adjustments. This compares to the existing loan options where lenders retain a 5

percent share on loans, but have different features. Under all of the loan

options, lenders will be able to apply their industry-specific expertise and

underwriting standards to best measure a borrower's income. In total, three loan

options -- termed new, priority, and expanded -- will be available for

businesses. The chart below summarizes the different loan options. 

     Additionally, businesses with up to 15,000 employees or up to $5 billion in

annual revenue are now eligible, compared to the initial program terms, which

were for companies with up to 10,000 employees and $2.5 billion in revenue. The

minimum loan size for two of the options was also lowered to $500,000 from $1

million. With the changes, the program will now offer more options to a wider

set of eligible small and medium-size businesses. 

     The Board recognizes the critical role that nonprofit organizations play

throughout the economy and is evaluating a separate approach to meet their

unique needs. 

     The Main Street Lending Program was established under Section 13(3) of the

Federal Reserve Act, with approval of the Treasury Secretary. The Treasury will

provide $75 billion for the program using funds from the Coronavirus Aid,

Relief, and Economic Security Act. Frequently asked questions and answers for

lenders and borrowers are also available. A start date for the program will be

announced soon.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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