US Fed again expands Main St loan program to reach more firms

WASHINGTON: The US Federal Reserve on Monday once again announced changes to its Main Street Lending Program to reach more companies struggling to deal with the damage done by the coronavirus shutdowns.

The facility, which has not yet launched, once again slashed in half the minimum loan amount, taking it down to $250,000 from $500,000 previously, the Fed said.

The central bank originally conceived the program with a $1 million minimum, as it rushed to find ways to support businesses that are too big to benefit from the Paycheck Protection Program run by the Treasury Department.

Since the pandemic hit in mid-March, the Fed has rushed out a series of emergency programs to pump liquidity into the US economy amid the severe downturn caused by the effort to contain the spread of COVID-19, including buying unlimited amounts of US Treasury debt, corporate bonds and mortgage-back securities.

But thousands of firms have weighed in on the criteria for what the Fed considers a small or medium business, prompting repeated changes.

"Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery," Federal Reserve Chair Jerome Powell said in a statement.

The Fed said the program should be ready to start lending "soon," and Powell said "I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period."

The changes also extend the life of the loans to five years from four previously, and offer a two-year grace period on principal repayment. Interest payments are deferred for one year.

And the central bank opened the aperture of the facility at the top end, expanding the maximum loan size to as much as $300 million

The Main Street program is available to businesses with up to 15,000 employees, or as much as $5 billion in annual revenue.

The firms benefitting from the $600 billion in available loans are subject to the restrictions Congress required under the $2.2 trillion CARES Act: they cannot issue dividends or buy their own shares until one year after the conclusion of the loan, and there are restrictions on executive pay.

Unlike the Treasury Department's PPP loans, which turn into grants as long as most of the funds are used to pay workers, the Main Street loans are not forgivable and go only to businesses that were solvent before the crisis.