- Deadline for Federal Reserve’s Main Street Lending Program extended one week to Jan. 8
- Extension approved to meet surge of demand in final weeks before the expiration of the lending facility
- Main Street loans more than double compared to the beginning of December
The termination of the Federal Reserve’s Main Street Lending Program has been extended for one additional week after a late surge in demand.
The program had been scheduled to conclude at the end of the year, but will now expire on Jan. 8. The Fed announced that the extension will allow more time to process and fund loan applications that were submitted before Dec. 14. Treasury Secretary Steven Mnuchin, who announced the decision not to extend the Main Street Lending Program and several other emergency lending facilities last month, approved the one-week reprieve.
The Main Street Lending Program provides small and medium-sized businesses with loans of $100,000 to $35 million, with a five-year term and the option to delay principal payments for two years and interest payments for one year; however, the loans also have a higher interest rate than traditional interbank loans. The Fed assumes 95 percent of the risk, with lenders assuming the remaining 5 percent.
While the facility had a lending capacity of $600 billion, it only approved a small fraction of this amount. Borrowers were often deterred by the high minimum loan amount and strict terms, while lenders were frequently reluctant to take on the risk or manage another federal program on the heels of the popular Paycheck Protection Program.
In announcing that that program would not be extended, Mnuchin said he felt the U.S. economy had improved enough that emergency lending programs were unnecessary. Federal Reserve Chairman Jerome Powell voiced his disagreement with the decision, pointing to signs of a slowing recovery amid a resurgence in COVID-19 infections.
The news that the Main Street Lending Program would be terminated prompted a late surge of applications. The upswell may have also been influenced by fears of new business restrictions, sluggish progress on new economic stimulus (which ultimately passed with renewed funding for the Paycheck Protection Program), and some steps taken by the Fed to ease the program’s requirements, such as lowering the minimum loan amount.
A total of $14.59 billion in loans had been made through the facility as of Dec. 23, more than double the amount at the start of the month. Borrowers reported that lenders had ceased taking applications for the Main Street Lending Program prior to a Dec. 14 deadline due to concerns that they would not be able to finalize a loan before the termination of the program.
