Fed eases Main Street Lending loans for small businesses

The Federal Reserve has sharply reduced the minimum loan amount in its Main Street lending program, potentially opening up emergency facilities to more US businesses at a time when Congress remains stuck on further aid.

By lowering the minimum loan amount to $ 100,000 from $ 250,000 on Friday, the Fed was responding to widespread calls to make the Main Street loan program easier to access for small businesses struggling to survive the pandemic. COVID-19. Fewer than 400 loans have been made since the program became operational in July for a total of $ 3.7 billion, a small fraction of the $ 600 billion potentially available.

The Fed has also changed the fee structure so that banks are better paid for facilitating loans under $ 250,000. Companies that have received less than $ 2 million in loans from the Paycheck Protection Program will now be eligible for the Fed’s program. All five members of the Board of Governors voted in favor of these changes.

The Fed’s announcement came near the end of a tumultuous week in markets and the global economy as virus cases increase in parts of the United States and Europe, clouding the outlook for the pace of recovery. Congress and the White House did not pass further stimulus measures before next week’s US presidential election, leaving US businesses and the unemployed without additional support as the country battles another wave of infections .

The adjustments to the Main Street loan program follow months of talks between Congress and the White House that ultimately failed to provide further fiscal stimulus. Lawmakers, business owners and industry groups have called for changes such as reduced minimum loan amounts and additional incentives for banks to provide support to small businesses.

Fed chief Jerome H. Powell has argued that businesses may need grants, not loans, to get through the long pandemic. But the PPP program, whose loans turn into grants if companies use a certain amount of funds for payroll retention, expired in August. The Fed is only legally allowed to lend money.

While program changes may come at a difficult time for businesses with few options now, demand for small loans has so far been limited. Only 14% of loans made on Main Street until the end of September were for loans under $ 1 million.

In a September hearing before the House Financial Services Committee, Powell pointed to the limited appetite for such small loans. He added that an entirely new program may be required for loans under $ 100,000, which often require personal guarantees.

To encourage banks to make loans below $ 250,000, the Fed has removed the 100 basis point transaction fee, which lenders will still pay the central bank for larger loans; increased loan origination fees that lenders charge borrowers; and increased the service fees the Fed pays to banks. The other provisions of the program, including banks’ withholding of 5% of every loan they sell to the Fed, remain unchanged.

Businesses can exclude PPP debt of less than $ 2 million, as long as it is expected to be written off under the Small Business Administration’s payroll provisions, from their eligibility calculations to apply for a loan on Main Street.

The Main Street program is scheduled to expire on December 31. It is backed by $ 75 billion in taxpayer money authorized by Congress in the Coronavirus Aid, Relief, and Economic Security Act.


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