The Fed’s Main Street Lending Program Changes Its Terms, Again

The Federal Reserve is finally listening to small business owners.

On Friday, the central bank announced a number of tweaks to its Main Street Lending Program aimed at widening the eligibility terms and making the loans more attractive to borrowers. The Fed’s Main Street Lending Program runs directly through federally-insured depository institutions, including banks, savings associations, and credit unions, and is geared to small and midsize businesses that were in good financial standing prior to the pandemic.

Here are those three changes in detail:

The Fed reduced the minimum loan size for its three business-focused Main Street loan facilities to $100,000, down from $250,000. The program supports three lending facilities for businesses: one for new borrowers, one for borrowers who may have existing debt but lower fiscal needs, and one for borrowers who have an existing loan or credit line with outsize fiscal needs.

Now, to access one of these loan pools, a company needs to have a minimum of just over $16,500 in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2019 and no debt. Previously, companies had to have generated at least $42,000 in adjusted 2019 EBITDA to be eligible. For companies with existing debt, the base EBITDA rises, depending on the amount of indebtedness. 

Program fees have been adjusted to encourage smaller loans. For two of the programs, the Fed waived transaction fees for loans under $250,000. If the initial loan amount is $250,000 or greater, the previous transaction fee of 1 percent, or 100 basis points, stands. Typically, lenders ask borrowers to pay these fees and then use the proceeds to pay the Fed’s special purpose vehicle.

The Fed and the U.S. Treasury issued a ruling that frees businesses with Paycheck Protection Program (PPP) loans up to $2 million from the requirement that that loan count toward their full debt load, a factor in the underwriting process for the Main Street loans. Previously those who’ve received PPP loans were required to count that amount toward their overall debt level.

While helpful, financial experts suggest the changes don’t go far enough. They say that extending the deadline past December 31 and reducing the minimum loan size to $50,000 would help move the needle–and considering that the Fed 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 of its tools, and there is room for the Fed to do more to ensure support is going out to the most at-risk small businesses in this country at such a critical moment,” says Ryan Metcalf, head of regulatory affairs at small business lending platform Funding Circle.