The Main Street loan program was recently overhauled, but some say it still misses the mark
After months of revisions and delays, the Federal Reserve’s long-awaited Main Street Lending Program is up and running – but critics say to stimulate the economy there may still be a long way to go.
The Federal Reserve Bank of Boston, which administers the program, announced Monday that it has opened registration for interested lenders, saying banks are “encouraged to immediately begin making loans to the Main Street program.” Borrowers should apply for the loans through a participating lender who will work directly with the businesses to determine eligibility.
The Main Street Lending Program was first announced in March and marks the Fed’s first foray into lending outside the banking sector since the Great Depression. The program was designed to fill a gap in the federal government’s support system for businesses that still have not received a break over the coronavirus pandemic. But critics questioned whether the $ 600 billion program was too targeted, whether loan terms were too onerous for businesses, and whether banks would be willing to participate given the Fed’s demands that they hold part of the loans they organize.
In the months leading up to its launch, the initiative, which targets midsize businesses too large for the paycheck protection program that has helped many local businesses, underwent two rounds of revisions. The latest revision reduces the minimum loan authorized from $ 500,000 to $ 250,000, increases maximum loan limits, extends loan terms from four to five years, and allows recipients to defer payments for a longer period – all efforts to encourage companies to apply.
The Fed also reduced the stake that banks must hold from 15% to just 5% for all loans, with the central bank taking care of the rest. The move was meant to encourage lenders to participate, but some experts say it could cause banks to hand out millions of bad loans.
“I am confident that the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult time,” Federal Reserve Chairman Jerome Powell said in a statement.
It remains to be seen whether these revisions will make loans more attractive to businesses, but SEC records show several well-known companies like SeaWorld and fashion designer and manufacturer Fossil expressed interest in federal loans as recently as last month.
“We have a significant interest, we think,” Powell said of the program last week.
But other companies, like mattress retailer Purple Innovation, balked at the conditions attached to the funds. In a filing with the SEC, the company claimed that the “program’s restrictions on how funds received are used … would limit our ability to operate our business.”
Powell has repeatedly stated that the Fed will continue to tweak the Main Street loan program as needed, but some Democratic lawmakers argue the program is fundamentally flawed in that it uses taxpayer money allocated through of the law on aid, relief and economic security (CARES) loans to large companies without conditions aimed at benefiting employees.
“This money should be used to support workers, and the Fed should require companies receiving bailout funds to certify that they will use the funds for this purpose,” Warren told ABC News in a statement.
“The Fed is giving more businesses easier access to taxpayer funds and not doing enough to hold them accountable. It’s another giveaway for businesses and CEOs to use that money for themselves. enrich, ”Warren said.
California Democratic Representative Katie Porter, who was a Warren student at Harvard Law School and now sits on the House Financial Services Committee, echoed the senator’s concerns about oversight.
“If the business takes the money and invests it in something that doesn’t actually help keep jobs, then basically we’re just giving low interest loans or free money to businesses that don’t need it and don’t use it for the benefit of all, even though we all foot the bill as taxpayers, ”Porter told ABC News in a telephone interview.
But she also pointed out another potential problem – timing. After experiencing a number of launch delays, Porter says, it may be simply too late for the program to make a difference.
“The window to really intervene was at the end of March, to try to keep us out of this recession, to try to avoid a level of massive disruption in the job market, massive unemployment that we are seeing,” Porter said.
Now that the National Bureau of Economic Research has announced that the United States is officially in a recession, it is all the more critical that loans go to companies that will stimulate the economy at large, Porter added.
“The question has to be, is this money for this business going to help cope with and reduce the recession and the unemployment rate? And if the answer is no, then it’s not necessarily a loan that we are doing. should do, ”she said. .
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