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The Federal Reserve Board of Governors building in Washington, D.C.

Fed expands Main Street Lending Program

The Federal Reserve Board’s Main Street Lending Program was supposed to serve as an alternative for larger businesses to the popular Paycheck Protection Program. Congress authorized up to $600 billion of funding, but loan terms weren’t attractive and the program was very slow to get off the ground.

So, the Fed announced an overhaul June 8.

“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Fed Chairman Jerome H. Powell said in a news release. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period.”

[PPP changes sought by HFA will help borrowers]

Smaller loans will be available

In addition to including smaller businesses, other changes:

  • Lower the minimum loan size for certain loans to $250,000 from $500,000.
  • Increase the maximum loan size for all facilities.
  • Lengthen the term of each loan option to five years from four.
  • Extend the repayment period for all loans by delaying principal payments for two years, rather than one.
  • And raise the Reserve Bank’s participation to 95 percent for all loans.

“Business owners who have received PPP loans are permitted to apply, but any business that applies must demonstrate that it was in good order before the COVID-19 crisis,” Inc.com reported. “The Fed plans to support three lending facilities: one for new borrowers, one for borrowers who may have existing debt but lower fiscal needs, and one for borrowers who have an existing loan or credit line with outsize fiscal needs.”

Fed will purchase 95 percent of each loan

Lenders are encouraged to begin making Main Street loans available as soon as they have registered for the program. The program intends to purchase 95 percent of each eligible loan submitted, provided that the required documentation is complete and the transactions are consistent with the relevant Main Street facility’s requirements. The program will also accept loans that originated under the previously announced terms, if funded before June 10.

“We appreciate the Federal Reserve’s willingness to make additional changes to the Main Street Lending Program,” Rob Nichols, president of the American Bankers Association, said in a statement. “By adjusting the loan terms, including lowering the minimum loan size, more credit-worthy small and mid-size businesses should be able to access this program and hopefully weather the economic challenges caused by COVID-19.”

The Main Street initiative is open to businesses with as many as 15,000 employees and up to $5 billion in annual revenue. It was meant to help businesses that weren’t eligible for PPP loans, which were generally limited to companies with fewer than 500 workers. But its loans are not forgiveable and come with higher interest rates.

Update: On June 15, the Federal Reserve Bank in Boston announced the opening of lender registration for the program. It encouraged lenders to register and to begin lending immediately.

Interest rates for Main Street loans remain high

“It really does not change anything from our perspective,” said Jesús R. Capó, vice president and chief information officer for El Dorado Furniture in Miami. “I agree the changes are welcome (the extended payback period, increase in amounts, and especially the changes to the number of employees) and may make it more appetizing for some potential borrowers who may have been on the fence, but it is still not a good fit for us.”

“The main issue is the interest rate,” added Capó, who is president of the HFA. “We have a line of credit with our bank that is (much) lower than what the government is offering.  It wouldn’t make economic sense.  During this pandemic, we had to tap the line several times, and are now slowly paying it back.”

The interest rate for new loans is LIBOR (London Inter-Bank Offered Rate) plus 3 percent.

The board is also working to establish a program for nonprofit organizations, most of which are excluded from the PPP.

[HFA COVID-19 Recovery Resources]

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