Fed opens up Main Street loans to smaller businesses

The Federal Reserve Board on Friday announced changes designed to make Main Street Lending Program loans available to smaller businesses and not-for-profits.

Specifically, the board reduced the minimum loan amount on three of the five Main Street loan facilities from $250,000 to $100,000. To encourage provision of the smaller loans, the board waived transaction fees for all loans under $250,000.

The Fed and Treasury also published a new frequently asked question clarifying that Paycheck Protection Program (PPP) loans of up to $2 million may be excluded for purposes of determining the maximum loan size under the Main Street Lending Program, if certain requirements are met. This should also help smaller businesses access Main Street loans, the Fed said in its news release.

The Main Street program has made almost 400 loans totaling $3.7 billion to date, the Fed said. In comparison, the PPP provided more than 5.2 million loans totaling $525 billion before the loan application window closed on Aug. 8. The average size of those loans was just a shade over $100,000.

Links to the FAQ and the term sheets for the modified Main Street facilities are available below:

The Main Street program so far

The Main Street program is one of a series of programs the Federal Reserve announced in April to provide up to $2.3 trillion in loans to households, businesses, and state and local governments struggling to deal with the COVID-19 pandemic. Specifically, the Main Street program supports loans to US companies with less than $2.5 billion in 2019 revenue that were in good financial standing before the COVID-19 crisis and subsequent quarantines stalled the American economy.

The Main Street program was designed in part to fill a need for funding for companies too large for the PPP, the program run by Treasury and the U.S. Small Business Administration (SBA) that provided forgivable loans to companies that in most cases must have no more than 500 employees.

Bolstered by $75 billion in equity provided by Treasury through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the Main Street program supports lenders that register for the program by purchasing 95% of each loan that meets eligibility and documentation requirements.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

By: Jeff Drew