Fed expands yet-to-be-launched lending backstop for larger firms
WASHINGTON — The Federal Reserve is expanding its yet-to-be-launched credit program for larger businesses and cutting by half the minimum loan amount available through the program to $500,000.
When the Fed first announced the details of the Main Street Lending Program on April 9, it said U.S. businesses with up to 10,000 employees or up to $2.5 billion in annual revenue would be eligible for loans to help them weather the economic effects of the coronavirus outbreak.
But after receiving extensive feedback, the Fed will make the program available to companies with up to 15,000 employees or $5 billion in annual revenue, the agency said Thursday.
“With the changes, the program will now offer more options to a wider set of eligible small and medium-size businesses,” the Fed said in a press release. The central bank added that it is also evaluating “a separate approach” to offer loans to nonprofit organizations.
The Fed's lending facilities effectively provide a credit option to larger firms in addition to the Paycheck Protection Program, which was authorized by Congress to provide loans to small businesses that in many cases can be forgiven.
The Fed program originally had two components: the Main Street New Loan Facility and the Main Street Expanded Loan Facility. But the Fed is adding a new option, the Main Street Priority Loan Facility, which will issue loans up to either $25 million or six times the borrower’s 2019 earnings before interest, taxes, depreciation and amortization.
Under the new Main Street Priority Loan Facility, lenders will retain a 15% share in loans, compared to the other two facilities where lenders retain just a 5% share on loans.
The Fed is also making changes to the Main Street Expanded Loan Facility. Previously, the facility would have allowed banks to expand existing loans to borrowers up to either $150 million or 30% of the existing bank loan, but going forward banks will be able to expand existing loans up to either $200 million or 35% of the existing bank loan.
The Main Street New Loan Facility remains unchanged, and will issue loans up to either $25 million or four times the borrower’s 2019 earnings before interest, taxes, depreciation and amortization.
“Under all of the loan options, lenders will be able to apply their industry-specific expertise and underwriting standards to best measure a borrower’s income,” the Fed said.
The start date of the program will be announced “soon,” the agency said. But Fed Chair Jerome Powell said in a press conference Wednesday that the central bank will “probably be continuing to work and expand Main Street for some time," and added that it wouldn’t be completed as quickly as the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility.