Economists Recommend More Lenient Terms For Main Street Lending Program

A pair of former Federal Reserve economists said they think the government should ease the rules on who can participate in the U.S.’s Main Street Lending Program intended to aid small- to medium-sized businesses (SMBs), The Wall Street Journal (WSJ) reported.

The program is intended to help companies with up to 15,000 employees or less than $5 billion in revenue from 2019, with the Fed offering to buy as much as 95 percent of loans made by banks that meet certain standards.

According to Nellie Liang and William English, who previously led the Fed’s divisions of financial stability and monetary affairs, in a paper published by the Brookings Institution, some changes are needed to the program, including increased bank fees.

The higher fees, Liang and English said, would encourage more banks to participate in the program, which has been criticized for its specific and limiting terms.

The two also recommend increasing the terms. Under the current terms, loans can be repaid within five years and can be delayed for two years. Liang and English said there should be extensions to the terms and incentives for those who repay their debts early.

The pair also said there should be different rates depending on the circumstance of the borrower; with changes so that less risky borrowers can have lower rates and easier documentation. And they said it would be a positive to allow smaller loans than the current $250,000 amount that was already lowered several other times as smaller banks would be more amenable to participating.

Finally, the two said it would be a good idea to let riskier borrowers go forward with loans if the bank is allowed to hold more than the current 5 percent stake in the loan in order to get more capital flowing.

However, both Liang and English said these modifications still might not be enough to help some businesses if the pandemic continues to wreak financial havoc. They said Congress should be ready to pass other types of reforms if needed, such as loan forgiveness or guarantees. The Fed currently isn’t allowed to forgive loans supported by the CARES Act.

The Main Street Lending Program has already expanded a few times, PYMNTS reported, with lower minimum loan requirements, higher max limits and adjusted repayments schedules. Fed Chair Jerome Powell said the adjustments would hopefully assist businesses in weathering the pandemic.