Fed makes Main Street Lending loans a bit more accessible to small businesses

Stack of $100 bills
The Federal Reserve cut the minimum loan size in its Main Street Lending Program and is letting banks earn more for facilitating those smaller loans.
(Getty Images/Comstock Images)

The Federal Reserve sharply reduced the minimum loan size in its Main Street Lending Program, potentially opening the emergency facilities to more U.S. businesses at a time when Congress remains deadlocked on additional aid.

By lowering the minimum loan size to $100,000 from $250,000 on Friday, the Fed was responding to widespread calls to make the Main Street Lending program easier to access for small businesses battling to survive the COVID-19 pandemic. Fewer than 400 loans have been made since the program went operational in July for a total of $3.7 billion, a small fraction of the total $600 billion potentially available.

The Fed also changed the fee structure so that banks will get paid more for facilitating loans of less than $250,000. Businesses that received less than $2 million in Paycheck Protection Program loans will now be eligible for the Fed’s program. All five members of the Board of Governors voted to approve these changes.


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The Fed’s announcement came toward the end of a tumultuous week in markets and the global economy as virus cases surge in parts of the U.S. and Europe, darkening the outlook for the pace of the recovery. Congress and the White House have not passed further stimulus measures ahead of next week’s U.S. presidential election, leaving businesses and unemployed Americans without added support as the country fights another wave of infections.

The adjustments to the Main Street Lending program follow months of talks between Congress and the White House that ultimately failed to deliver more fiscal stimulus. Lawmakers, business owners and industry groups have called for changes such as reducing the minimum loan size and further incentives for banks to provide support for small businesses.

Fed chief Jerome H. Powell has argued that businesses may need grants, not loans, to get through the lengthy pandemic. But the PPP program, whose loans turn into grants if companies use a certain amount of the funds for payroll retention, expired in August. The Fed is legally only allowed to lend money.

Although the program changes may come at a clutch time for businesses with few options right now, the demand for small loans has so far been limited. Only 14% of Main Street lending done through the end of September was for loans of less than $1 million.

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In a September hearing before the House Financial Services Committee, Powell pointed to the limited appetite for such small borrowing. He added that an entirely new program might be required for loans under $100,000, which often require personal guarantees.

To encourage banks to make loans under $250,000, the Fed got rid of the 100-basis-point transaction fee, which lenders will still pay to the central bank on larger loans; raised the loan origination fee that lenders charge borrowers; and increased the servicing expense that the Fed pays to the banks. Other program provisions, including banks’ retention of 5% of each loan that they sell to the Fed, remain unchanged.

Businesses can exclude PPP debt of less than $2 million, as long as it’s expected to be forgiven under the Small Business Administration’s payroll provisions, from calculations of their eligibility to apply for a Main Street loan.

The Main Street program is set to expire Dec. 31. It’s backed by $75 billion of taxpayer money authorized by Congress in the Coronavirus Aid, Relief, and Economic Security Act.