Fed targets smaller bizzes to boost jobs
Main Street Lending Program expanded to small, mid-size businesses to provide COVID-19 relief
A carpentry company with multiple employees might find a $250,000 government COVID-19 relief loan inviting, where a previous minimum of $500,000 might have proved daunting. (Shutterstock)
By Ted Cox
The Federal Reserve is expanding a coronavirus relief loan program to small and mid-size businesses in a bid to boost jobs.
The Federal Reserve Board announced Monday that it would be lowering the minimum loans for the Main Street Lending Program. At the same time, in a general expansion of the program, it “raised the maximum loan limit, adjusted the principal repayment schedule to begin after two years, and extended the term to five years, providing borrowers with greater flexibility in repaying the loans,” according to a Fed news release.
Federal Reserve Chairman Jerome Powell made it clear he intends it to boost employment as businesses strive to recover from the economic collapse brought on by efforts to mitigate the spread of COVID-19. “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 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 program was announced in March and aimed at companies with up to 15,000 employees and $5 billion in annual revenue — not exactly small businesses. The alterations announced Monday cut the minimum for a new or priority loan from $500,000 to $250,000, while also increasing the maximum loans to $35 million and $50 million in those categories. The term of the loans is extended from four to five years, with interest deferred the first year, while repaying the principal is backloaded — 15 percent the third and fourth years and the final 70 percent in the fifth year.
The Main Street Lending Program was funded through a congressional COVID-19 relief package, enabling the Federal Reserve to accept 95 percent of the risk. It will be run through local banks, which will accept the additional 5 percent of risk on the loans.
It’s meant to provide relief to businesses that might not have benefited from the Paycheck Protection Program, which ran out of money and came in for harsh criticism after its initial funding was scarfed by by national corporations like Ruth’s Chris Steak House and Shake Shack, both of which wound up returning multimillion-dollar loans after the public cried foul.
It’s easy to see that a $250,000 loan to, say, a fair-sized restaurant or a carpentry company with multiple employees might be more inviting under those terms than a $500,000 obligation.
The Fed said the Main Street Lending Program will be “open for lender registration soon and to be actively buying loans shortly afterwards.”
The Illinois Restaurant Association has also pointed small businesses in the Chicago area to the Cook County Community Recovery Fund, with no-interest loans available up to $20,000 for small businesses with 25 or fewer employees and up to $3 million in annual revenue, with loans of up to $10,000 available for independent contractors making less than $100,000 a year.