THE FED - NEW YORK. The Federal Reserve's most ambitious and complicated crisis relief program is set to launch in coming days but it is far from certain that the small and mid-sized businesses the US$ 600 billion "Main Street Lending Facility" is meant to help will come clamoring for loans.
Two months into the economic crisis spurred by the novel coronavirus pandemic, some lobbyists, bankers and small business consultants say the loans may be too large to help many struggling businesses and some borrowers are worried about coming under public scrutiny.
Some lenders also say they are concerned about the balance sheet risks they could face by participating.
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Paul Merski, an executive vice president at the Independent Community Bankers of America said up until Monday small banks had expressed "very limited interest" in the program but 11th-hour changes announced by the Fed on Monday would be "helpful" in addressing some concerns, he said.
The program aims to provide credit to businesses that are too large for the Paycheck Protection Program, which targets companies with fewer than 500 employees, and too small to directly benefit from the Fed's corporate bond buying programs.
As with the PPP, the Main Street facility loans will be distributed via participating banks, but unlike the PPP those loans are not forgivable and will have to be repaid.
The program, which is being administered by the Federal Reserve Bank of Boston, will lend to U.S. businesses with up to 15,000 employees or revenues capped at US$ 5 billion.
On Monday, the Fed expanded the program by reducing the minimum loan size to US$ 250,000 and raising the maximum to US$ 300 million. The Fed also gave borrowers five years to repay the loans, with no payments due the first two years and no penalty on prepayment.
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The Main Street program is part of the federal government's unprecedented effort to shore-up the U.S. economy and help companies retain workers after the coronavirus shutdown put more than 20 million Americans out of work.
Data from the 2017 Census business survey suggested that 38,000 companies employing about 30.2 million people could make use of the program, including more than half of the S&P 500.
"It is far and away the biggest challenge of any of the 11 facilities that we've set up," Fed chair Jerome Powell said last month during a Princeton University webcast in which he also said the central bank is open to adjusting the program.
