The Treasury Department and the Federal Reserve said Tuesday they had extended the deadline for the main street loan program from Dec. 31 to Jan. 8 to process a last-minute grant to deliver loans.
Treasury Secretary Steven Mnuchin last month rejected granting an extension to several Fed emergency lending programs, including the Main Street Lending Program, which is designed to support small business lending and media and non-profit organizations affected by the coronavirus pandemic.
As a result, the program stopped accepting loans after Dec. 14, but witnessed a flood of loan submissions by that time, some of which are still being processed.
While the virus relief package signed Sunday by President Trump also requires the Fed to close emergency lending programs this year, it allows Main Street loans to be processed through Jan. 8.
As of Dec. 23, the Fed had financed more than $ 15 billion in loans through the program, an increase from $ 6 billion in loans financed just four weeks earlier, according to records released Monday.
Initially, the program had limited adoption, as banks refused to process loans for a new government program. Under the program, the Fed was willing to buy up to $ 600 billion in loans from eligible companies and nonprofits to banks. The Fed buys 95% of these loans from banks that originate them.
But some banks, especially smaller community banks, have become more comfortable with the program and it looks like the prospect of it disappearing by the end of the year will lead to a definite increase in demand.
“The fact that we have seen an increase in volume at this time shows that there was certainly demand from many medium-sized businesses and non-profit organizations to use the facility on the terms we already had,” said Eric Rosengren, chairman of the Federal Reserve Bank of Boston, in an interview earlier this month. The Boston Fed administers the program.
Some government officials have said the banking sector has weathered the pandemic more strongly than seemed likely when the Main Street program was announced this spring, meaning it was no longer necessary. Others have reprimanded the program for too strict terms.
“If you needed a Main Street loan, a lot of banks wouldn’t grant it to you, and if you could opt for Main Street, you could probably get a bank loan,” said Hal Scott, a professor at Harvard Law School.
The terms of the program were subject to approval by the Treasury Department, which provided $ 75 billion to cover the losses of any loan. Main Street loans have a rate of 3 percentage points above short-term interbank lending rates and have five-year terms. They allow borrowers to delay principal payments for two years and interest payments for the first year.
“What we’ve highlighted is that you could make a program successful, but the way you set up the program makes a difference,” Rosengren said. “Depending on the risk and the loss I was willing to take on, I think I could have reached out to a larger set of medium-sized businesses and nonprofits.”
Analysts say up to four million small businesses could be lost by 2020 as the pandemic takes its toll on local economies. WSJ visits Yuma, Arizona, where small business owners say another round of congressional stimuli may be too late. Photo: Adam Younker for the Wall Street Journal
Bankers said they have been reluctant to participate on Main Street, in part because they have struggled to run a new separate government program to provide help to small businesses, called the Wage Protection Program.
This initiative, led by the Treasury and Small Business Administration Department, has seen much stronger demand because loans are fully guaranteed by the government and because companies that follow certain rules, including 60% of the payroll loan, they may have loans forgiven. .
For many banks, “getting out of the hands of the PPP was too overwhelming to figure out a new program,” said Steve Sefton, president of Endeavor Bank in San Diego, which has closed about 20 loans on Main Street in compared to the 856 PPP.
When Edward Hughes approached five or six domestic lenders about getting a Main Street loan for his specialty chemical company this year, they offered him a private bank loan that was lower than he could qualify on Main Street. , and with higher interest rates and more expensive rates, he said.
“What we realized was that the Fed had good intentions of establishing a program to provide liquidity to small and medium-sized businesses, but all the big banks, unlike in 2008, were in good shape. Retaining only 5% of the loan was not very appealing to them, ”said Hughes, executive director of Aculon Inc., a coating producer that makes surfaces waterproof in San Diego.
The Main Street program was “more appealing than anything I’ve seen out there,” said Hughes, whose company received the Main Street loan two weeks ago after Endeavor agreed to expedite its loan.
“It’s fantastic capital,” Hughes said. “We see this basically as fuel for growth.”
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