WASHINGTON – 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. In addition, borrowers won't have to make principal payments for the first two years.
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.
The Fed's move “should attract a wider range of participants,” said Joe Brusuelas, chief economist at RSM, a tax and advisory firm. It “bolsters the probability of a successful start to what we think is a sorely needed program.”
Fed officials have said that the Main Street program is intended for companies that were healthy before the coronavirus outbreak in March. They also seek to help companies too large for the government's small business loan program but too small to issue corporate bonds — a market that the Fed is bolstering separately.
The Treasury Department has approved the program, which will lend up to $600 billion. Treasury will provide $75 billion to cover potential loan losses.
Chair Jerome Powell said late last month that Main Street is “far and away the biggest challenge” among the nine lending programs the Fed has established to try to keep credit flowing during the pandemic. That’s because each loan will be individually tailored. Normally, the Fed buys and sells largely identical Treasury securities.
The Fed announced the Main Street program in early April as part of a broad array of credit programs that are intended to provide up to $2.3 trillion to ensure that businesses, households and state and local governments could keep borrowing in the midst of the shutdowns forced by the pandemic. Yet most of that firepower has remained on the sidelines because the Fed has delayed the launch of Main Street and its municipal lending programs.