Answering the call to provide more help for small- and medium- sized businesses (SMBs), the Federal Reserve Board has made adjustments to its Main Street Lending Program.
The Fed announced on Monday (June 8) that it has agreed to lower the minimum loan, raise the maximum limit, adjust the principal repayment schedule to begin after two years and extend the term to five years. With these changes, borrowers will be provided with greater flexibility in repaying the loans, the Fed added.
“Supporting small- and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” said Federal Reserve Chairman Jerome Powell in a statement. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period.”
The Fed said that the move is meant to help a wide range of SMBs, which employ millions of people, to make it through the economic crisis sparked by the COVID-19 pandemic.
The board’s changes include:
- Lowering the minimum loan size for certain loans to $250,000 from $500,000;
- Increasing the maximum loan size;
- Increasing the term of each loan option to five years, from four years;
- Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
- Raising the Reserve Bank’s “participation” to 95 percent for all loans.
Lenders have been encouraged by the Fed to begin making Main Street loans immediately. Under the terms of the popular Main Street Lending Program, the Fed would purchase 95 percent of each eligible loan that is submitted to the program — provided needed documentation is complete and the transactions fit the program’s requirements.
The Main Street Lending Program will also accept loans that were made under the previous terms — as long as they are funded before June 10.
In addition, the Fed said that, given that nonprofits play a crucial role in the economy, the board plans to establish a program soon for them.
The Main Street Lending Program was established with the approval of the U.S. Treasury Secretary Steven Mnuchin. It was funded by Congress and the White House with $75 billion provided by the economic stimulus CARES Act.