The Treasury Department and the Federal Reserve said on Tuesday that they extended the deadline for the Main Street Lending Program from December 31 to January 8 to process last-minute pressure to grant loans.
Treasury Secretary Steven Mnuchin last month refused to grant an extension to several Fed-run emergency lending programs, including the Main Street Lending Program, which is designed to support loans to small and medium-sized businesses and non-profit organizations. profit interrupted by the coronavirus pandemic.
As a result, the program stopped accepting loans after December 14, but witnessed a flurry of loan applications by that time, some of which are still in process.
While the virus-relief package signed on Sunday by President Trump also requires the Fed to close emergency lending programs this year, it does allow loans completed on Main Street to be processed by January 8.
As of December 23, the Fed had financed more than $ 15 billion in loans through the program, an increase of $ 6 billion in loans financed just four weeks earlier, according to documents released on Monday.
The program initially had limited acceptance, as banks refused to process loans for a new government program. Under the program, the Fed was willing to buy up to $ 600 billion in loans from banks to eligible companies and nonprofits. The Fed is buying 95% of the loans from the banks that originated them.
But some banks, especially smaller community banks, were more comfortable with the program, and the prospect of it ending at the end of the year seemed to generate a final increase in demand.
“The fact that we’ve seen an increase in volume at this point highlights that there was certainly a demand for many midsize companies and nonprofits to use the facilities on the terms we already had,” said Eric Rosengren, President of the Federal Reserve Bank Boston, in an interview earlier this month. The Boston Fed is running the program.
Some government officials said the banking sector resisted the pandemic with greater intensity than was likely when the Main Street program was announced this spring, meaning it was no longer needed. Others criticized the program for too strict terms.
“If you needed a loan on Main Street, many banks would not give it to you, and if you could qualify for Main Street, you would probably get a bank loan,” said Hal Scott, a professor at Harvard Law School.
The terms of the program were subject to approval by the Treasury Department, which provided $ 75 billion to cover losses incurred on any loans. Main Street loans have a rate of 3 percentage points above short-term interbank loan rates and have a five-year term. They allow borrowers to delay the payment of the principal for two years and the payment of interest in the first year.
“What we highlight is that you could make a program successful, but the way you put it together makes a difference,” said Rosengren. “Depending on how much risk and how much loss you were willing to take, I think it could have reached a wider range of midsize companies and nonprofits.”
Up to four million small businesses could be lost in 2020, analysts say, as the pandemic affects local economies. WSJ visits Yuma, Arizona, where small business owners say another round of Congressional stimulus may be too late. Photo: Adam Younker for The Wall Street Journal
Bankers said they are reluctant to participate on Main Street in part because they struggle to run a new separate government program to provide aid to small businesses, called the Pay Check Protection Program.
The initiative, from the Ministry of Finance and the Administration of Small Businesses, has been in much stronger demand because loans are fully guaranteed by the government and because companies that follow certain rules, including 60% of payroll loans, may have their loans forgiven.
For many banks, “getting off the heels of PPP, it was very difficult to find a new program,” said Steve Sefton, president of Endeavor Bank in San Diego, which closed about 20 loans on Main Street, compared to 856 under PPP.
When Edward Hughes approached five or six national lenders about getting a Main Street loan for his specialty chemicals company this year, they offered him a private bank loan that was less than what he could qualify on Main Street – and with higher interest rates and more expensive rates, he said.
“What we realized is that the Fed had good intentions in putting together a liquidity program for small and medium-sized businesses, but all the big banks, unlike 2008, were in good shape. Holding only 5% of the loan was not very attractive to them, ”said Hughes, chief executive of Aculon Inc., a producer of coatings that make surfaces waterproof in San Diego.
The Main Street program was “more attractive than anything I’ve seen out there,” said Hughes, whose company received its loan on Main Street two weeks ago, after Endeavor agreed to streamline its loan.
“It’s incredible capital,” said Hughes. “We see it basically as aviation fuel for growth.”
Write to Nick Timiraos at [email protected]
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