Lenders face quandary over offering Main Street loans to noncustomers

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WASHINGTON — A potential obstacle has emerged for businesses seeking emergency credit through the Main Street Lending Program: Not every participating bank has disclosed whether it will offer loans to noncustomers.

The Federal Reserve Bank of Boston published a list of 90 lenders that plan to offer MSLP loans to new business customers, and in which states. Bank of America is accepting new customers for the program in all 50 states. Certain regional lenders said they plan to cater to noncustomers across areas spanning more than 10 states, but many other industry leaders — including JPMorgan Chase, Wells Fargo, Citigroup and U.S. Bancorp — were left off the list entirely.

“I would highlight that many banks not on that list are still providing the program for their own borrowers, but aren't going to both make the program available to noncustomers and don't want to necessarily be publicly revealed,” Eric Rosengren, the president and CEO of the Boston Fed, said in an interview.

Wells, Citi and U.S. Bancorp currently plan to serve only existing customers in the Main Street program, according to The Wall Street Journal, which cited the banks themselves.

However, other banks left off the list may ultimately provide credit to new customers yet may not want to disclose that for fear of being overwhelmed with applications, Rosengren said.

“There are some banks that said they would consider noncustomers but to be frank, they were afraid of being inundated by borrowers,” he said. “So some of those may change their mind over time as they're able to get through their own flow of loans.”

“I would highlight that many banks not on that list are still providing the program for their own borrowers, but aren't going to both make the program available to noncustomers and don't want to necessarily be publicly revealed,” said Eric Rosengren, president and CEO of the Boston Fed.
“I would highlight that many banks not on that list are still providing the program for their own borrowers, but aren't going to both make the program available to noncustomers and don't want to necessarily be publicly revealed,” said Eric Rosengren, president and CEO of the Boston Fed.

The Federal Reserve created the program to provide another credit option for middle-market firms hurting economically from the coronavirus pandemic. The Fed is backing loans made by third-party lenders by buying up to 95% of a participation in each loan.

But companies interested in the program may confront the reality that the bank with which they have a credit relationship is not participating. The Boston Fed published the state-by-state list to help businesses identify participating banks accepting new customers.

The program became fully operational this week, months after the Fed had announced it and amid speculation over what might have delayed its launch.

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Some observers have worried that the Main Street program could fall victim to the kind of reputational problems that emerged after the launch of the Paycheck Protection Program. While the Small Business Administration-run PPP was meant to facilitate small-business loans — loan that can be forgiven — to firms in dire straits as a result of the pandemic, banks in several cases made loans to some of their wealthiest clients.

The Boston Fed's list does provide options for businesses looking for a bank willing to take them on as a client, although the options are limited in certain geographical areas.

In three states — Hawaii, Montana and South Dakota — BofA is the only bank accepting new customers as borrowers. The bank declined to comment for this story.

Numerous regional banks disclosed they plan to accept new customers in at least 10 states. Truist said it would take new customers in 17 states, and KeyBank said it would make loans to new customers in 15 states. Citizens Bank is taking on new borrowers in 13 states.

A Citizens spokesperson said the 13 states where the bank is accepting new clients are part of its core market where it has retail branches.

But some signs point to banks being open to expanding their offerings later in the program's cycle.

"At U.S. Bank, we are committed to helping our customers who have been financially impacted by the COVID-19 pandemic," said a spokeswoman. "To provide timely and solid credit decisions to businesses in the early phase of the program, we are accepting applications from existing borrowing customers. We will, however, consider expanding the types of applicants we can serve over time."

In a statement, KeyBank noted that the Main Street program "is still in its early stages." The bank said it "plans to focus its efforts on existing customers while also considering new customers."

"The MSLP will work differently from the Paycheck Protection Program (PPP) in that the loans will not be forgiven and will be subject to more complex and time-consuming credit underwriting and documentation requirements," KeyBank said. "We’re encouraging our existing customers to reach out to their relationship managers to discuss their interest in the program. For those not currently banking with KeyBank, and if they believe they may be eligible and would like more information when it becomes available, we’ve set up a separate email at main_street@keybank.com."

A spokeswoman for Citi said the bank’s registration for the Main Street Lending Program is underway and will be for existing clients only. A spokesperson for JPMorgan Chase said the bank intends to participate in the program and currently is working through the registration process, but would not say whether it is taking on new customers.

Wells Fargo's priority with respect to the Main Street Lending Program is helping existing customers to restructure older debt, according to a source familiar with the company's position. The San Francisco bank is also looking into lending to businesses in underserved communities, this person said.

The 90 lenders on the Boston Fed's list represent about one-third of the 260 banks that have successfully registered for the program thus far, said Rosengren. He added that 174 banks are in the process of registering, and that the Boston Fed would update the state-by-state list of lenders accepting new customers as more banks are approved for the program.

Fed Chairman Jerome Powell told Congress last week that although the Fed has seen “a lot of interest” from lenders looking to participate in the program, banks were not yet reporting much demand from borrowers.

“What the banks tell us is that it’s sort of a mixed thing,” Powell told the House Financial Services Committee. “They’re not getting a ton of interest from borrowers, and many say they expect that to change over the course of the next few months.”

Rosengren said that as the economic realities of the coronavirus pandemic become clearer, more businesses might need to seek financial help.

“The fact that some banks are reluctant to be public, in part because they don't want to be overwhelmed by borrowers, tells you there's a lot of borrowers but they have to meet the bank's criteria, as well as meeting the criteria to be eligible for the program,” he said.

The $600 billion Main Street Lending Program is available to eligible businesses with up to 15,000 employees or up to $5 billion in annual revenue.

The lending program — which was established using funding appropriated to the Treasury Department from the congressional coronavirus relief package — has been criticized by some who feel that the minimum loan of $250,000 is simply too high to work for many smaller businesses, and that the calculations that determine the appropriate loan amount would disqualify some companies.

Powell has said the Fed is committed to adjusting the program as needed, and the central bank has already made several tweaks to the program to attract more interest from potential borrowers.
But considering the recent spike in COVID-19 cases in many states, more companies might need to look to the Fed’s program for additional support, Rosengren said.

“Because we're having so many problems with the pandemic, and the pandemic looks like it's going to be worse in the United States than most other developed countries, I think there are going to more banks and more borrowers that are going to find that they actually need this program over time,” he said.

Allissa Kline, Kevin Wack and Laura Alix contributed to this article.

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Main Street Lending Program Federal Reserve Federal Reserve Bank of Boston Eric Rosengren Jerome Powell Coronavirus CARES Act Bank of America