Federal Reserve Boosts Main Street Lending Program in Ongoing Battle with COVID-19 Devastated Economy

The Federal Reserve Board has announced it is expanding the scope and eligibility for the Main Street Lending Program.

The Federal Reserve developed the Main Street Lending Program to help credit flow to SMEs that were in sound financial condition before the pandemic but have since struggled to keep doors open due to the economic collapse.

After the initial announcement of the Program, the Fed received over 2,200 letters from individuals and businesses and thus the Board has decided to expand the loan options available to businesses.

The changes include:

  • Creating a third loan option, with increased risk sharing by lenders for borrowers with greater leverage;
  • Lowering the minimum loan size for certain loans to $500,000; and
  • Expanding the pool of businesses eligible to borrow.

Under the new loan option, lenders would retain a 15 percent share on loans that when added to existing debt do not exceed six times a borrower’s income, adjusted for interest payments, taxes, and depreciation and other appropriate adjustments. This compares to the existing loan options where lenders retain a 5 percent share on loans, but have different features.

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. In total, three loan options—termed new, priority, and expanded—will be available for businesses. The chart below summarizes the different loan options.

Additionally, businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible, compared to the initial program terms, which were for companies with up to 10,000 employees and $2.5 billion in revenue. The minimum loan size for two of the options was also lowered to $500,000 from $1 million. With the changes, the program will now offer more options to a wider set of eligible small and medium-size businesses.

The US Treasury will provide $75 billion for the program using funds from the Coronavirus Aid, Relief, and Economic Security Act.

A start date for the program will be announced soon.

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