The Fed has launched a new lending program to help struggling companies and get people back to work. The Main Street Lending program was announced in March to help small to medium businesses that were doing well before the pandemic, and it’s rolling out now at local banks. The loans are not forgivable like those in the Paycheck Protection Program but the terms are generous, and they do fill a lending void for businesses that were too big to qualify for the PPP program. (1)
The Federal Reserve Bank of Boston is administering the $600 billion program, but loans are provided through local banks that have registered to participate. (2)
Registration began on Monday, June 15th. Borrowers should check with their banks to see if they are registered, and work directly with those banks to get one of these loans. The Fed is encouraging lenders to start making loans immediately.
To qualify, businesses must have been established before March 13th of this year. They must have fewer than 15,000 employees and less than $5 billion in annual revenue. Businesses that received help under the PPP program may be eligible for this program, but Main Street loans are not forgivable. The PPP makes a loan forgivable if the employer spends 60% of the loan amount on payroll. The Main Street program has no such requirement but states that companies should make “commercially reasonable efforts” to retain employees.
The program has gone through a couple of revisions since it was first announced. Some supporters thought the rules were too restrictive to provide the kind of help that businesses need so the Fed revised the program twice, with more lenient terms. Among the revisions:
- Minimum loan amounts were reduced from $500,000 to $250,000.
- Maximum loan amounts were increased.
- Loan terms were extended from four years to five years.
- Borrowers can defer principal payments for two years and interest payments for one year.
Maximum loan amounts vary depending on the type of loan and lending facility that’s backing it. (3) There are three facilities:
- The Main Street New Loan Facility provides loans from $250,000 to $35 million. That maximum is up from $25 million.
- The Main Street Priority Loan Facility provides loans from $250,000 to a maximum of $50 million. This maximum includes outstanding debt that qualifies for loan consolidation.
- There’s also a Main Street Expanded Loan Facility for much bigger loans. These expanded loans can range from $10 million to $300 million. That’s up from a maximum of $200 million.
- The Fed may also open two facilities to help nonprofit organizations.
The Fed was originally going to buy 85% of the loans, leaving banks with just 15% of the risk, but the Fed sweetened that deal. To encourage more banks to participate, the Fed will now buy 95% of the loans, leaving just 5% on a bank’s balance sheet. Critics are concerned that by loosening this requirement, banks may be inclined to make riskier loans. But Fed Chief Jerome Powell remains confident about the benefits, saying they will “support employment during this difficult period.”
The interest rates for all three kinds of loans will be based on a LIBOR of 1 or 3 days, plus 3%. LIBOR stands for London Inter-bank Offered Rate which is an average interbank rate that is used to determine adjustable rates.
The program will only be offered as a way to help businesses hurt by the pandemic. It will cap out at $600 billion and is set to expire this fall, on September 30th.
The Main Street program is for businesses that are typically larger than the ones that qualify for the PPP program, but there can be some overlap. Some businesses that received PPP loans may also qualify for this program.