The Treasury Department and the Federal Reserve said Tuesday they have extended the deadline for the Main Street Loan Program from Dec. 31 to Jan. 8 to prosecute a last-minute defeat to deliver loans.
Treasury Secretary Steven Mnuchin last month refused to grant an extension to several emergency lending programs run by the Fed, including the Main Street Lending Program, which is designed to support lending to small and medium-sized businesses and nonprofits disrupted by the pandemic. of coronavirus.
As a result, the program stopped accepting loans after December 14, but witnessed a flow of loan deposits that led to this deadline, some of which are still being processed.
While the virus removal package signed Sunday by President Trump also calls on the Fed to close emergency lending programs this year, it allows processing of loans completed on Main Street by Jan. 8.
Since Dec. 23, the Fed has financed more than $ 15 billion in loans through the program, an increase from $ 6 billion in loans financed just four weeks earlier, according to documents released Monday.
The program initially had a limited takeover, as banks opposed processing loans for a new government program. Under the program, the Fed was willing to purchase up to $ 600 billion in loans to eligible and nonprofit businesses by banks. The Fed buys 95% of these loans from the banks that obtained them.
But some banks, especially smaller community banks, have become more comfortable with the program, and the prospect that it will disappear by the end of the year seems to lead to a final increase in demand.
“The fact that we have seen an increase in volume at this time underscores that there has certainly been demand for many medium-sized firms and nonprofits to use the facility under the conditions we already had,” said Eric Rosengren, chairman of the Federal Reserve Bank. of Boston in an interview earlier this month. The Boston Fed manages the program.
Some government officials said the banking sector had withstood the pandemic more strongly than it seemed likely when the Main Street program was announced this spring, which means it is no longer needed. Others failed the program on too strict terms.
“If you needed a loan on Main Street, a lot of banks wouldn’t have given it to you, and if you could qualify for Main Street, you could probably get a bank loan,” said Hal Scott. professor at Harvard Law School.
The terms of the program were approved by the Treasury Department, which provided $ 75 billion to cover losses incurred on any loans. Main Street loans have a rate of 3 percentage points above short-term interbank lending rates and have a term of five years. They allow debtors to delay principal payments for two years and interest payments for the first year.
“What I’ve highlighted is that you can make a successful program, but the way you set up the program makes a difference,” said Mr. Rosengren. “Depending on how much risk and how much you were willing to take, I think it could have reached a larger set of medium-sized firms and nonprofits.”
Up to four million small businesses could be lost in 2020, analysts say, as the pandemic affects their local economies. The WSJ is visiting Yuma, Arizona, where small business owners say another round of stimulus from Congress could be too little too late. Photo: Adam Younker for The Wall Street Journal
Bankers said they were reluctant to participate on Main Street, in part because they were working to run a new separate government program to help small businesses, called the Wage Protection Program.
This initiative, led by the Treasury Department and the Small Business Administration, has seen a much stronger demand because loans are fully guaranteed by the government and companies that comply with certain rules, including 60% of the payday loan, can be forgiven for their loans. .
For many banks, “coming from the PPP has been too overwhelming to realize a new program,” said Steve Sefton, president of Endeavor Bank in San Diego, which has closed about 20 loans. of Main Street, compared to 856 of the PPP.
When Edward Hughes approached five or six national creditors this year about getting a loan on Main Street for his specialty chemical company, they offered him a private bank loan that was less than what he could get for Main Street. and with higher interest rates and more expensive taxes, he said.
“What we came to realize was that the Fed had good intentions of setting up a liquidity program for small and medium-sized businesses, but all the big banks, unlike 2008, were in good shape. Keeping only 5% of the loan has not been very attractive to them, ”said Mr. Hughes, CEO of Aculon Inc., a coating manufacturer that makes San Diego waterproof surfaces.
The Main Street program was “more attractive than anything I’ve seen there,” said Mr. Hughes, whose business received the Main Street loan two weeks ago after Endeavor agreed to speed it up. loan.
“It’s just extraordinary capital,” Mr. Hughes said. “We consider this to be practically fuel for aircraft for growth.”
Write to Nick Timiraos at [email protected]
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