The Fed has made changes to its Main Street Lending Program to allow more small and medium-sized businesses to be able to participate.
The Federal Reserve Board has announced that it has expanded its Main Street Lending Program in order to allow more small and medium-sized businesses to be able to participate. Under the changes, the minimum loan amount will be lowered, the maximum loan limit raised, and the repayment schedule and term will be extended in order to provide borrowers with more flexibility in repayment. The Fed has lowered the minimum loan amount, raised the maximum loan limit, adjusted the principal repayment schedule to begin after two years, and extended the term to five years, providing borrowers with greater flexibility in repaying the loans. Fed Chair Jerome H. Powell stated that "supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery. Powell expressed confidence that the changes "will improve the ability of the Main Street Lending Program to support employment during this difficult period."
The agency has issued updated term sheets for the Main Street New Loan Facility, Main Street Priority Loan Facility, and the Main Street Expanded Loan Facility. These include a description of the programs, eligible lenders and borrowers, eligible loans, and more information.
The Fed established emergency lending facilities to address the economic disruptions resulting from the COVID-19 pandemic, and to support the flow of credit to households and businesses. The Main Street Expanded Loan Facility and Main Street New Loan Facility were established with $75 billion in equity provided by the Treasury Department from the Coronavirus Aid, Relief, and Economic Security Act, to facilitate up to $600 billion in lending to small and medium-sized businesses. Originally, eligible borrowers were businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.
The newly announced changes include:
- lowering the minimum loan size for certain loans to $250,000 from $500,000;
- increasing the maximum loan size for all facilities;
- increasing the term of each loan option to five years, from four years;
- extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
- raising the Reserve Bank's participation to 95 percent for all loans.
The Main Street Lending Program intends to purchase 95 percent of each eligible loan that is submitted to the program, as long as the required documentation is completed and the transactions are consistent with the relevant Main Street facility's requirements. The Main Street Lending Program will also accept loans that were originated under the previously announced terms, if funded before June 10, 2020.
The Fed noted that it is working to establish a program for nonprofit organizations.
ABA response. Rob Nichols, president of the American Bankers Association, issued the following statement on the Fed’s action. "We appreciate the Federal Reserve’s willingness to make additional changes to the Main Street Lending Program. By adjusting the loan terms, including lowering the minimum loan size, more creditworthy small and mid-sized businesses should be able to access this program and hopefully weather the economic challenges caused by COVID-19. We encourage the Fed to remain flexible as the needs of borrowers and lenders evolve."
Companies: American Bankers Association
MainStory: TopStory Covid19 FederalReserveSystem FinancialStability Loans
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