Bankers skeptical Fed’s Main Street program will pick up steam

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WASHINGTON — Banks by and large do not expect lending through the Federal Reserve's middle-market rescue program to pick up anytime soon, according to a new Fed survey.

The central bank conducted a supplemental senior loan officer survey in September with questions about the $600 billion Main Street Lending Program. Respondents generally said they have been able to meet their borrowers’ credit needs without the facility.

The program, intended to help midsize businesses weather the economic fallout of the coronavirus pandemic, is being funded by the Fed and the Treasury through congressional appropriations. It is available to businesses with fewer than 15,000 employees or less than $5 billion in annual revenue.

Eligible companies can receive a loan of up to $300 million through the program. But participation has been slow since the Fed started purchasing stakes in Main Street loans in July, leading lawmakers to call for changes to draw more interest.

Although banks expect the share of borrowers inquiring about commercial and industrial loans to increase in the next three months, not many anticipate that lenders will be any more willing to extend new Main Street loans, according to the survey.

The Federal Reserve conducted a supplemental senior loan officer survey in September with questions about the $600 billion Main Street Lending Program.
The Federal Reserve conducted a supplemental senior loan officer survey in September with questions about the $600 billion Main Street Lending Program.

Registered Main Street lenders reported that they most often declined to approve a loan through the program because a business would not have qualified for credit before the pandemic, as well as concerns about a borrower's payment ability after the pandemic.

Most banks surveyed that did not end up registering as lenders through the program also cited concerns about losses and uncertainty about how much of the loan they would be on the hook for in the event of a default.

“Registered banks often cited concerns about borrowers’ financial condition before and during the COVID-19 crisis, as well as overly restrictive MSLP loan terms for borrowers as reasons for not approving MSLP loans," the Fed's survey said. "Meanwhile, nonregistered banks mentioned their ability to provide credit to eligible borrowers without the MSLP, as well as unattractive key MSLP loan terms for lenders as reasons for not registering.”

The Fed through a special-purpose vehicle purchases a 95% stake in loans originated through the Main Street program, while banks keep the remaining 5% on their books.

Many banks also said that they decided against participating because most borrowers who had inquired about a Main Street loan were able to access to alternative sources of funding, including corporate bonds, commercial paper or the Paycheck Protection Program, which offered forgivable loans to small businesses but expired in August.

Registered lenders in the program of all sizes reported that many borrowers who had inquired about a Main Street loan were ineligible because the amount of debt they had exceeded the program’s requirements, or were turned off by the program’s certifications and covenants, including limits on capital distributions and bonus payments in exchange for accepting a loan.

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Federal Reserve Main Street Lending Program Small business lending Paycheck Protection Program Commercial lending Coronavirus Debt Commercial lending
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