Main Street Lending Program Broadened to Attract More Lenders, Borrowers

Kylee Wooten
June 12, 2020
Read Time: min

This post was updated on June 15, 2020.

Last month’s employment numbers shocked economists, with unemployment improving from 14.7% to 13.3% – a far cry from the near 20% expected. What happened? The numbers suggest that government relief efforts, like the Paycheck Protection Program (PPP), are helping to bring back jobs that were heavily impacted by the coronavirus pandemic. While this is a promising sign, 13.3% unemployment is still extremely high (for context, peak unemployment during the Great Recession was 10%). More work is still needed to support businesses struggling to keep their doors open, and other relief programs, like the soon-to-begin Main Street Lending Program (MSLP), will continue to fill an important need in economic relief efforts. Over the last two months, the Fed has made changes to the MSLP aimed at appealing to more lenders and borrowers, including lowering minimum loan size, loan term, and required participation rates. 

Background on MSLP

In April, the Federal Reserve unveiled the new loan-purchase program, in which the Fed will leverage a special purpose vehicle (SPV) to implement the loan facilities. Banks will issue the loans to businesses, and then sell 95% of the loan back to the Fed. While the popular PPP loans were targeted specifically for small businesses with fewer than 500 employees, the MSLP aims to broaden the size of businesses eligible to receive relief funds. In the months following the announcement, the Fed sought feedback and revised the program accordingly to make MSLP loans more appealing to an even wider spectrum of businesses and lenders.

The Fed is authorized by the Treasury to provide up to $600 billion in loans to companies with less than 15,000 people, or an annual revenue of less than $5 billion. The MSLP establishes three loan facilities, the Main Street New Loan Facility (MSNLF), the Main Street Expanded Loan Facility (MSELF), and the Main Street Priority Loan Facility (MSPLF). If a business secured a PPP loan, it is still eligible to apply for an MSLP loan; however, MSLP loans are not forgivable. Whereas the PPP loans must be used primarily for payroll, funds provided under the MSLP are not so restrictive. However, the borrower must agree to make reasonable efforts to maintain employment levels.

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New changes to expand participation

The MSLP aims to be a lifeline for businesses that may have been too big to participate in the PPP, but too small to access corporate lending facilities. Under the original terms, the Fed set the minimum loan amount at $500,000 and the maximum amount at $200 million.

To help increase participation, the Fed has lowered the minimum loan size to $250,000 and raised the maximum loan size to $300 million.

Among the criticisms the program has received, many have argued that the program’s interest rates were too high, while its repayment periods were too short. The Fed has extended the maturity of each loan option from four years to five years, as well as extended the repayment period for all loan options by delaying principal payments for two years instead of one. However, the interest rates remain the same at LIBOR plus 3%.

The latest changes also include an increase in participation from the Fed, which will free up more capital for lenders to make additional loans and reduce their risk tied to the program. Now, the Reserve Bank will purchase 95% of the loan – up from 85% – leaving a bank with 5% of the loan on its books, so long as the transactions are consistent with the facility’s requirements. The Independent Community Bankers of America (ICBA) was among groups that had requested increased participation rates from the Fed.  

As of June 15, 2020, lenders interested in participating in the MSNLF, MSELF, or MSPLF can begin registering their institution using the lender portal. After submitting the lender registration via the lender portal, the Fed will review the application, which is expected to take several business days. For more information, lenders can contact mslp@bos.frb.org or visit the Fed's MSLP overview page. The SPV will stop purchasing loan participations Sept. 30 unless the Fed and the Treasury Department, which pledged $75 billion in equity to the Main Street Lending Program, extend the program.

About the Author

Kylee Wooten

Kylee Wooten is a content marketing manager at Abrigo.

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