Fed lowers minimum loan level for small business lending program

The Federal Reserve has lowered the barriers on its lending program for smaller businesses as part of an effort to broaden the appeal of the sparsely used facility.

In another pair of tweaks to its Main Street Lending Program, the Fed on Friday said it is reducing the minimum loan size to $100,000 from $250,000 and will ease restrictions on debt for companies already participating in the Paycheck Protection Program.

Aimed at helping small- and medium-sized firms get through the Covid-19 pandemic, the program thus far has issued nearly 400 loans for a total of $3.7 billion. The total capacity of the MSLP is $600 billion, thanks to $75 billion in collateral from the Treasury Department that can be leveraged up.

In a release, the Fed said the changes are “two important ways to better target support to smaller businesses that employ millions of workers and are facing continued revenue shortfalls due to the pandemic.”

The Main Street program is part of a raft of facilities the Fed rolled out shortly after the pandemic escalation in early March.

Both borrowers and lenders have complained, however, that some of the conditions of the loans are too stringent and the fees are more onerous than they’re willing to pay. Where the PPP loans are forgivable under many circumstances, the Main Street loans are not, further dampening their appeal.

The other change apart from the minimum loan requirement exempts up to $2 million in PPP loans when computing applicants’ debt loads. The Fed also said it is adjusting fees “to encourage the provision of these smaller loans.”

The move comes amid heightened concerns about an economic slowdown heading into the winter, triggered both by a rise in coronavirus cases and a continuing stalemate on Capitol Hill over further fiscal relief. Fed officials repeatedly have called for more stimulus from Congress, but the White House and congressional Democrats have been unable to reconcile their competing proposals.

Main Street loans are aimed at companies with fewer than 15,000 employees or with 2019 revenue of $5 billion or less. In addition to the program, the Fed also has been buying corporate debt and issuing loans and liquidity injections across a variety of markets.

Source: CNBC