The Federal Reserve will expand the scope and eligibility for its $600 billion lending plan designed to reach small and mid-size businesses hit by the COVID-19 pandemic.
The Federal Reserve Board on Thursday 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 small and medium-sized businesses that were in sound financial condition before the pandemic.
The Board will expand the loan options available to businesses, and increase the maximum size of businesses that are eligible for support under the program. 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.
According to the Federal Reserve:
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 Board recognizes the critical role that nonprofit organizations play throughout the economy and is evaluating a separate approach to meet their unique needs.
The Main Street Lending Program was established under Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary. The Treasury will provide $75 billion for the program using funds from the Coronavirus Aid, Relief, and Economic Security Act. Frequently asked questions and answers for lenders and borrowers are also available. A start date for the program will be announced soon.
For up-to-date information and state resources regarding coronavirus, including confirmed case counts and clinician guidance, visit http://health.maryland.gov/coronavirus.