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WASHINGTON–A new survey of senior loan officers has found most expect to see an increase in inquiries over the next few months related to commercial and industrial loans as part of the federal government’s Main Street Lending Program—but a much more modest increase in the number of banks willing to extend such loans.
The Fed said its supplementary Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) focused on four areas: commercial and industrial (C&I) loan inquiries and banks’ participation in the MSLP since mid-June, when lender registration started; banks’ outlook regarding their participation in the program; factors that may have shaped banks’ willingness to participate; and characteristics of borrowers inquiring and receiving MSLP loans.
“Regarding C&I loan inquiries and banks’ participation in the MSLP, respondents indicated that, on balance, inquiries for C&I loans from borrowers of an eligible size for the MSLP (or MSLP-sized borrowers) were basically unchanged since mid-June, whereas inquiries decreased from Paycheck Protection Program (PPP)-sized borrowers and borrowers too large to be eligible for the MSLP,” the Fed reported. “The majority of respondents reported that they were registered for the MSLP, with some banks reporting that they were already underwriting and submitting MSLP loans, and others reporting that they were preparing to make their first MSLP loans in the coming weeks.”
‘Modest’ Increase by Banks
In terms of banks’ outlook for participation, the Fed said respondents expected C&I loan inquiries to increase in the next three months from MSLP-sized borrowers, assuming that economic activity progresses in line with consensus forecasts. “However, only a modest share of banks expected their willingness to extend MSLP loans to increase over the same period,” the Fed added.
The Fed said the survey probed for factors that may have shaped banks’ participation in the MSLP, including asking registered banks about their reasons for not approving MSLP loans and with nonregistered banks about their reasons for not registering.
“Registered banks often cited concerns about borrowers’ financial condition before and during the COVID-19 crisis, as well as overly restrictive MSLP loan terms for borrowers as reasons for not approving MSLP loans,” the Fed reported. “Meanwhile, nonregistered banks mentioned their ability to provide credit to eligible borrowers without the MSLP, as well as unattractive key MSLP loan terms for lenders as reasons for not registering.”
‘Significant Reductions in Revenue’
Regarding borrower characteristics, the survey asked banks about MSLP-sized borrowers inquiring about C&I loans and about borrowers approved for MSLP loans, the Fed reported.
“Inquiring borrowers reportedly suffered significant reductions in revenue or employment due to COVID-19, were often eligible for PPP loans, and had access to alternative bank products other than C&I loans or to alternative sources of funds other than bilateral bank loans,” according to the report. “In contrast, approved borrowers were reportedly even more likely to be affected by the pandemic than inquiring borrowers, but less likely to have access to alternative bank products or sources of funds. In addition, approved MSLP borrowers were less likely to be new clients than inquiring borrowers.”
The Fed noted responses did vary widely according to asset size.