Federal Reserve Expands Scope of Main Street Lending Program

WASHINGTON – The Federal Reserve said Thursday it is expanding the scope and eligibility for the Main Street Lending Program, a vehicle created to help credit flow to small and medium-sized businesses that were in sound financial shape before the pandemic.

When the initial terms of the Main Street program were announced last month, the central bank said because the financial needs of businesses vary widely, it was seeking feedback from the public on potential refinements. 

Since then, the Fed Board said, it has received more than 2,200 letters from businesses and nonprofits. 

In response to the public input, the Board decided to expand the loan options available to businesses, and increase the maximum size of businesses 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.

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. 

This compares to the existing loan options where lenders retain a 5% 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.

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 these changes, the program will now offer more options to a wider set of eligible small and medium-size businesses.

The bank added that it was evaluating “a separate approach” to meet the “unique needs” of non-profit groups.