Fed’s Main Street Loan Program Changes Terms Again

the Federal Reserve is finally listening to small business owners.

On Friday, the central bank announced a number of adjustments to its Main Street Loan Program aimed at widening the eligibility conditions and making loans more attractive to borrowers. The Fed’s Main Street loan program runs directly through federally insured deposit-taking institutions, including banks, savings associations, and credit unions, and targets small and medium-sized businesses that were in good shape. financial health before the pandemic.

Here are these three changes in detail:

1. Lower loan amount

The Fed reduced the minimum loan amount for its business-focused Main Street loan facilities to $ 100,000, down $ 250,000. The program supports three loan facilities for businesses: one for new borrowers, one for borrowers who may have existing debt but less tax needs, and one for borrowers who already have a loan or line of credit with outstanding debt. disproportionate tax needs.

Now, to access one of these loan pools, a business that has no debt must have a minimum of just over $ 16,500 in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). in 2019. Previously, companies had to have generated at least $ 42,000 in 2019 Adjusted EBITDA to be eligible. For companies already in debt, basic EBITDA increases with the amount of debt.

2. Reduced fees

Program fees have been adjusted to encourage small loans. For two of the programs, the Fed waived transaction fees for loans below $ 250,000. If the original loan amount is $ 250,000 or more, the previous transaction fee of 1%, or 100 basis points, is maintained. Typically, lenders ask borrowers to pay these fees then use the proceeds to pay for the Fed’s ad hoc vehicle.

3. Adjusted debt terms

The Fed and the US Treasury have issued a ruling that frees companies receiving Paycheck Protection Program (PPP) loans up to $ 2 million from the requirement that that loan count towards their entire payroll. debt, a factor in the Main Street loan underwriting process. Previously, those who received PPP loans had to count this amount in their overall debt level.

While helpful, financial experts suggest the changes don’t go far enough. they say that extension of the deadline beyond December 31 and reducing the minimum loan amount to $ 50,000 would help move the needle – and given that the Fed’s program is the only game in town in terms of pandemic relief, they should do more. “Contrary to some reports, the Fed has not exhausted all its tools, and there is room for the Fed to do more to ensure that support goes to this country’s most risky small businesses at one point. such a critical moment, ”said Ryan Metcalf, head of regulatory affairs for small business lending platform Funding Circle.

Since its launch on June 15, the Fed claims to have granted nearly 400 loans totaling $ 3.7 billion. Using $ 75 billion in Cares Act funding, the program was to support up to $ 600 billion in low-interest loans to businesses with up to $ 5 billion in annual revenues or less than $ 15,000. employees.

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