By Nick Timiraos
The Federal Reserve announced Friday its latest round of changes to boost participation in its $600 billion lending effort targeting small and midsize businesses amid difficulty by Congress and the White House in reaching agreement on a new round of relief measures.
The Main Street Lending Program, which is jointly run with the Treasury Department, has seen muted demand from borrowers and banks and is designed to encourage more lending to businesses that were in a solid financial condition before the coronavirus pandemic hit this year. Under the program, the Fed will purchase 95% of eligible loans made by banks.
Friday's changes reduced, for the third time, the minimum loan amount under the program -- to $100,000, from $250,000. The loan amounts had earlier been lowered from $1 million to $500,000 and then from $500,000 to $250,000. The changes also revamped the fees banks can charge borrowers to encourage greater production of smaller loans.
The Fed and Treasury also updated guidance to banks that will allow borrowers to exclude Paycheck Protection Program loans of up to $2 million under certain circumstances when determining the maximum loan amount under the Main Street Lending Program.
The program offers five-year loans to qualified businesses and nonprofits with deferred principal and interest payments. So far, the program has made nearly 400 loans totaling $3.7 billion, the Fed said Friday.
Fed officials have warned that the economy will face a more uneven and difficult recovery without additional direct aid to individuals, businesses and governments that have faced lost income due to the pandemic. But Republicans and Democrats have been unable to reach agreement on how much more money to spend to combat the fallout from the virus.
At a congressional hearing last month, lawmakers pressed Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin to commit to lowering the minimum loan amount under the program. Mr. Mnuchin signaled support for such a step. But Mr. Powell said the program wasn't particularly well suited for very small loans, and he suggested Congress would be better off providing additional relief similar to the PPP, which offered loans to small businesses that can be forgiven.
"There's very little demand in the facility below $1 million," said Mr. Powell. The types of loans offered under the PPP offer "a better way to approach these [businesses]. Trying to underwrite the credit of hundreds of thousands of very small businesses, it would be very difficult."
Mr. Powell has said muted demand for Main Street loans could reflect improving credit conditions for solvent businesses, and he has suggested especially hard-hit businesses might be reluctant to take on additional debt, requiring help that the Fed isn't well suited to provide.
"It's really a facility for companies or borrowers that don't have access to 'regular way' borrowing now," Mr. Powell said at a news conference last month. Some borrowers "may be in a situation where their business is still relatively shut down, and they won't be able to service a loan, and so they may need more fiscal support."
(END) Dow Jones Newswires
10-30-20 1116ET
