US Fed at last launches Main Street Lending Program

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Washington (AFP)

The US Federal Reserve at long last launched its Main Street Lending Program on Monday after making a series of changes to broaden its reach.

The central bank several times in recent weeks was on the verge of rolling out the program, but held off as it expanded the criteria to reach more companies struggling to deal with the damage done by coronavirus shutdowns.

"Lenders can find the necessary registration documents on the program site and are encouraged to begin making Main Street program loans immediately," the Fed's Boston regional bank, which administers the program, announced.

The program aims to support businesses that are too big to benefit from the Paycheck Protection Program run by the Treasury Department, and help them to retain their employees.

After hearing from thousands of firms and banks, the Fed slashed the minimum loan amount to $250,000 from $1 million originally.

The changes also extend the life of the loans to five years, and offer a two-year grace period on principal repayment, while interest payments are deferred for one year.

The Fed also opened the aperture of the facility at the top end, expanding the maximum loan size to as much as $300 million

The Main Street program is available to businesses with up to 15,000 employees, or as much as $5 billion in annual revenue, that were solvent before the crisis.

Unlike the Treasury Department's PPP loans, which turn into grants as long as most of the funds are used to pay workers, the Main Street loans are not forgivable.

The firms benefitting from the $600 billion in available funding are subject to the restrictions Congress required under the $2.2 trillion CARES Act: they cannot pay dividends to investors or buy their own shares until one year after the conclusion of the loan, and there are restrictions on executive pay.

Once the lenders extend credit to businesses, the Fed will purchase 95 percent of the loans to ensure banks continue to have cash available to put into the economy.

Since the pandemic hit in mid-March, the Fed has rushed out a series of emergency programs to pump liquidity into the US economy amid the severe downturn caused by the effort to contain the spread of COVID-19, including buying unlimited amounts of US Treasury debt, corporate bonds and mortgage-backed securities.