Economy

Fed expands Main Street program to allow for both smaller and bigger loans

Key Points
  • The Fed has changed the terms of its Main Street lending program to allow for greater participation.
  • The central bank said Monday that it is lowering the initially stated minimum loan and raising the maximum that can be borrowed.
  • The Fed is also expanding the loan terms to five years.
Fed lowers minimum loan, raises maximum for Main St. lending facility
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Fed lowers minimum loan, raises maximum for Main St. lending facility

As the Federal Reserve prepares to start up its Main Street lending program, it has changed the terms to allow for greater participation.

The central bank said Monday that it is lowering the initially stated minimum loan and raising the maximum that can be borrowed, plus is expanding the loan terms to five years. The program is part of the Fed's efforts to get money to small- and medium-sized businesses hurt during the coronavirus-induced recession.

Under the new guidelines, the minimum loan now will be $250,000, half the amount under previous versions of the plan. The maximum will now vary by facility but could be up to $300 million from the previous $200 million.

Fed Chairman Jerome Powell recently said the program was "days away" from making its first loan and said the central bank was revamping provisions based on feedback received from thousands of sources.

"Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery," Powell said in Monday's announcement. "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."

In addition to the changes in loan size, the Fed also has extended the repayment period from four years to five years and will delay the repayment period to two years from the original one year. Interest also is delayed for one year and will be Libor, a commonly used overnight lending rate, plus 3%.

Lenders will now assume just 5% of the loans, with the Fed holding the rest.

The program is part of close to a dozen measures the central bank has taken to boost lending and liquidity during the coronavirus crisis. Powell has repeatedly stressed that the Fed has "lending but not spending" powers. Main Street and other similar programs are being backstopped by Treasury money that the Fed can leverage up. In this case, the Treasury is providing $75 billion in equity that can be used for $600 billion in lending.

Correction: An earlier version misstated the amount of the loans that banks will hold.

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