The Federal Reserve has taken additional actions to provide up to $2.3 trillion in loans to support employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus (COVID-19) pandemic.
The Fed said its role is guided by its mandate from Congress to promote maximum employment and stable prices, and its responsibilities to promote the stability of the financial system. According to the Federal Reserve, the actions taken will bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP) by “supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.” The Fed said its actions will also ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program.
The Main Street Lending Program is designed to enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering four-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Under the program, principal and interest payments will be deferred for one year. According to the Fed, eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses. Banks will retain a 5% share, selling the remaining 95% to the Main Street facility, which will purchase up to $600 billion of loans. Firms seeking Main Street loans must commit to making “reasonable efforts” to maintain payroll and retain workers and borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the Coronavirus Aid, Relief, and Economic Security Relief Act (CARES Act). Firms that have applied for or taken advantage of the PPP may also take out Main Street loans, according to the Fed.
The Fed has asked for input from lenders, borrowers, and other stakeholders to make sure the program supports the economy as effectively and efficiently as possible. The National Lumber and Building Materials Dealer Association (NLBMDA), which had previously advocated for the expansion of the small business loan programs, said it will submit comments to ensure dealer members are able to easily access the Fed program and receive the relief they need.