Fed Acts to Broaden Appeal of ‘Main Street’ Lending Program
WASHINGTON (AP) — The Federal Reserve is expanding the range of companies that will qualify for its soon-to-begin Main Street Lending Program, in which the Fed will lend directly to individual companies for the first time since the Great Depression.
Under the changes announced Monday, the Fed will lower the minimum amount companies can borrow, from $500,000 to $250,000. And it’s raising the maximum loan, from $200 million to $300 million, for companies that want to expand existing loans. The Fed will also extend the program’s loan repayment period from four years to five.
All told, the changes appear intended to make the Main Street loans more appealing to businesses and banks as they seek to recover from a deep recession.
Smaller companies, many of which have endured severe damage from the shutdowns forced by the coronavirus, might now find the Main Street program more appealing. Borrowers will now be able to defer principal payments for two years, up from one.
Under the Main Street lending program, banks make loans to businesses; the Fed then buys the loans from the banks. This lessens the credit risk to the bank and frees up more of its capital to make more loans.
The central bank said Monday that it will buy 95% of the loans that are made to more highly indebted companies, up from 85% previously. For less-indebted borrowers, the Fed has said it will buy 95% of the loan.
Collectively, the changes suggest that the Fed might be having trouble attracting borrowers for the Main Street program. Chair Jerome Powell previously said the Main Street program would start making loans on June 1 or shortly after, but it has not yet done so.
On Monday, the Fed said the program would start registering banks “soon” and will then buy loans “shortly afterwards.”
By AP reporter Christopher Rugaber