Fed, Treasury offers one-week extension for ‘Main Street’ program on demand

The Treasury and the Federal Reserve said on Tuesday that they had extended the cut-off date for the main street loan program from December 31 to January 8 to process a last minute to deliver loans.

Treasury Secretary Steven Mnuchin last month refused to extend several Fed-run emergency lending programs, including the Main Street lending program, which is designed to lend to small and medium-sized businesses and nonprofits disrupted by the coronavirus pandemic , to support.

As a result, the program stopped accepting loans after December 14, but it witnessed a flood of loan submissions leading up to the deadline, some of which are still being processed.

While the virus relief package signed by President Trump on Sunday also requires the Fed to close emergency lending programs this year, it can be processed until January 8 into completed Main Street loans.

On Dec. 23, the Fed financed more than $ 15 billion in loans through the program, an increase of $ 6 billion in loans financed just four weeks earlier, according to documentation released Monday.

The program initially had limited use, as banks did not have to process loans for a new government program. Under the program, the Fed was prepared to make loans of up to $ 600 billion to banks granted to eligible and non-profit businesses. The Fed buys 95% of the loans from banks that have their origin.

But some banks, especially smaller community banks, have become more comfortable with the program, and the prospect of it disappearing by the end of the year has apparently led to a final increase in demand.

“The fact that we are currently seeing an increase in volume underscores that there has certainly been a demand for many medium-sized businesses and non-profit organizations to use the facility under the conditions we already had,” said Eric Rosengren , president of the Federal Reserve, said Bank of Boston, in an interview earlier this month. The Boston Fed administers the program.

Some government officials said the banking sector had withstood the pandemic more strongly than it probably seemed when the Main Street program was announced this spring, meaning it is no longer needed. Others misjudged the program for terms that were too strict.

“If you needed a main street loan, many banks would not give it to you, and if you were eligible for main street, you would probably be able to get a bank loan,” said Hal Scott, a Harvard professor. Law School, said.

The terms of the program were subject to the approval of the Treasury Department, which provided $ 75 billion to cover loan losses. Main Street loans have a rate of 3 percentage points above short-term interbank loans and have five-year terms. This allows borrowers to defer the principal payments for two years and the interest payments for the first year.

“What we emphasize is that you can do a successful program, but how you set up the program makes a difference,” he said. Rosengren said. “Depending on how much risk and how much loss you were willing to accept, I think it could have reached a larger set of medium-sized businesses and non-profit organizations.”

As many as four million small businesses could be lost in 2020, analysts say, as the pandemic takes its toll on local economies. WSJ visits Yuma, Ariz., Where small business owners say a further stimulus from Congress may be too little. Photo: Adam Younker for The Wall Street Journal

Bankers said they were reluctant to participate in Main Street, in part because they struggled to run a separate, new government program to help small businesses, called the Paycheck Protection Program.

The initiative, led by the Treasury Department and the Small Business Administration, has a much stronger demand because the loans are fully guaranteed by the government and because businesses that follow certain rules, including 60% of the loan for pay, the loans can be forgiven.

For many banks, it was ‘too overwhelming to get a new program off the heels of PPP’, said Steve Sefton, president of Endeavor Bank in San Diego, which closed about 20 Main Street loans, compared to 856 under PPP. .

When Edward Hughes approached five or six national credit providers about obtaining a main street loan for his specialty chemical company, they offered him a private bank loan that was smaller than what he could qualify for under Main Street – and with higher interest rates and more expensive fees, he said.

“What we realized was that the Fed had good intentions of drawing up a program to provide liquidity to small and medium-sized businesses, but all the big banks were, unlike in 2008, in good shape. Keeping only 5% of the loan was not very attractive to them, ”says Mr. Hughes, CEO of Aculon Inc., a San Diego-based manufacturer of waterproofing coatings.

The main street program was ‘more attractive than anything else I saw there’, said Mr. Hughes said, whose business received its main street loan two weeks ago after Endeavor agreed to speed up its loan.

“It’s just a huge amount of capital,” he said. Hughes said. “We consider it basic jet fuel for growth.”

Write to Nick Timiraos by [email protected]

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