U.S. Fed expanding Main Street loan program to aid more firms
WASHINGTON, USA – The United States Federal Reserve said on Thursday, April 30, it is expanding its business loan program to reach more firms as companies struggle to weather the impact of the coronavirus shutdowns.
The Main Street Lending Program, which the Fed announced but has not yet launched, was designed to reach small and medium-sized businesses that are too big to benefit from the Paycheck Protection Program (PPP) run by the Treasury Department.
The Fed in recent weeks has rushed out a series of emergency programs to pump liquidity into the US economy amid the severe downturn caused by the effort to contain the spread of the coronavirus, including buying unlimited amounts of US Treasury debt, corporate bonds, and mortgage-back securities.
After hearing from thousands of firms about the Main Street program, the Fed 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."
With the expansion, businesses with up to 15,000 employees or as much as $5 billion in annual revenue are now eligible, compared to the initial program terms, which limited the size to 10,000 employees and $2.5 billion in revenue.
In addition, the Fed lowered the minimum loan size to $500,000 from $1 million.
The central bank said it decided to open the aperture of the loan program to aid companies too big for PPP but too small to have routine access to capital markets to generate financing.
However, the firms benefiting from the $600 billion in available loans are subject to the restrictions Congress required under the $2.2-trillion CARES Act: they cannot issue dividends or buy their own shares until one year after the conclusion of the loan, and there are restrictions on executive pay.
But too many restrictions would discourage firms from applying and limit the potential benefit of the loans. Even so, Fed Chair Jerome Powell on Wednesday, April 29, cautioned that demand might be constrained by firms reluctant to take on more debt.
"We are deploying these lending powers to an unprecedented extent," Powell said, noting that the Fed will continue to look for more ways to expand lending.
Expanding PPP financing
Unlike PPP loans, which turn into grants as long as most of the funds are used to pay workers, the Main Street loans are not forgivable and go only to businesses that were solvent before the crisis.
Officials are working around the clock to finalize the details of the Main Street program, and "a start date for the program will be announced soon," the Fed statement said.
It also is considering a separate program to help nonprofit organizations, which play a "critical role" in the economy, the statement said.
Later Thursday the Fed announced it was expanding the program to backstop PPP loans, to allow more financial institutions to participate beyond traditional banks.
That means community development institutions as well as members of the Farm Credit System – which provides financing to American farmers and ranchers – and other lenders approved by the Small Business Administration are now eligible to participate in the Fed's PPP Liquidity Facility.
The facility offers unlimited low-cost financing to the lenders using PPP loans as collateral, for terms of two years. – Rappler.com