What is the Fed's Main Street Lending Program?

The Federal Reserve has announced a number of initiatives to help keep the U.S. economy on sound footing throughout the coronavirus pandemic, including its Main Street Lending Program.

The Main Street Lending Program, announced in April, acts as a complement to the Small Business Administration’s Paycheck Protection Program in some ways, by helping to provide loans to companies that might be too large to take advantage of PPP funding, but too small to access credit through capital markets.

However, businesses that applied for PPP may also be eligible for this program as an additional form of stimulus. In general, it targets small and mid-sized businesses.

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The central bank, however, is not issuing loans.

Instead, the Fed encourages lending among local banks to businesses by buying back the majority of the loan from the bank – about 95 percent – thereby assuming the risk.

The program, which became fully operational this month, will offer loans from $250,000 up to $300 million to eligible businesses, according to the Central Bank. The program was adjusted twice in order to increase accessibility among potential borrowers.

The money is not forgivable and it is expected to be paid back over five years. Principal payments are deferred for two years and interest for one.

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Overall, the Fed may purchase about $600 billion worth of loans. The Main Street Lending program is backed by the Treasury through appropriations distributed under the CARES Act. There are three different facilities, which differ slightly in their terms, and borrowers can only seek funding via one.

Funding is available for businesses with up to 15,000 employees – or as much as $5 billion in revenue.

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Like the other coronavirus-related relief programs, businesses must meet certain criteria in order to be eligible for the cash, including making a reasonable effort to retain employees.

There are also limitations on what can be done with common stock and stock equivalents.

In order to apply, businesses must go through participating banks.

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