Federal Reserve expands Main Street program to smaller firms

Posted 10/30/20

WASHINGTON (AP) — The Federal Reserve will reduce the minimum loan level in a small business lending program and waive some fees to try to boost participation in a program that has so far provided …

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Federal Reserve expands Main Street program to smaller firms

Posted

WASHINGTON (AP) — The Federal Reserve will reduce the minimum loan level in a small business lending program and waive some fees to try to boost participation in a program that has so far provided little assistance to struggling companies.

The Fed announced Friday that it will support loans of as low as $100,000 in its Main Street Lending Program, down from an earlier minimum of $250,000. The Main Street program seeks to support small and mid-sized businesses by buying 95% of a loan from participating banks. This is intended to limit the risk to banks and encourage them to lend more.

Yet so far the program has made just 400 loans for a total of $3.7 billion — far below the $600 billion in total funding that the Fed has said it is willing to lend. The Treasury Department has provided $75 billion to backstop any losses.

Main Street's shortcomings have provided fuel to many critics who charge that the Fed has done more to help Wall Street and large corporations than small businesses during the pandemic. Fed Chair Jerome Powell has responded that many small companies, hit hard by the downturn, likely need grants rather than loans. Yet the Fed has only “lending powers,” Powell has said, “not spending powers.”

To encourage banks to make the smaller loans, the Fed will eliminate a 1% transaction fee that it charges banks for loans below $250,000. It will also allow banks to charge borrowers a higher fee, and will double the fee that the Fed pays banks to service the loans to 0.5%, from 0.25%.

And the central bank also said that companies seeking to borrow from the Main Street program may be able to exclude loans of up to $2 million that they have received from the Paycheck Protection Program, the small business lending program that was established by the aid package that Congress enacted in March.

If a borrower has applied for that loan to be forgiven, it can exclude it for the purposes of calculating its outstanding debts. Doing so would allow it to borrow more under Main Street.

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