WASHINGTON–The Federal Reserve Board has announced an expansion of its Main Street Lending Program, while also saying it recognizes the critical role that nonprofit organizations play throughout the economy and is “evaluating a separate approach to meet their unique needs.”
The Fed said the goal of the new Main Street Lending Program is to help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic.
The Fed noted that when the program was initially announced, it indicated the financial needs of businesses vary widely and it was seeking feedback from the public on potential refinements. More than 2,200 letters from individuals, businesses, and nonprofits were received, the Fed said.
Expanded Loan Options
In response to the public input, the board said it decided to expand the loan options available to businesses, and increased 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
- Expanding the pool of businesses eligible to borrow
According to the Fed, under the new loan option, lenders would retain a 15% 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.
‘Specific Expertise’
“This compares to the existing loan options where lenders retain a 5% share on loans, but have different features,” the Fed said. “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.”
Additionally, the Fed said 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, according to the Fed.