Fed Expands Main Street Program To Allow Smaller And Larger Loans

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As the Federal Reserve prepares to launch its main street loan program, it has changed the conditions to allow for greater participation.The central bank said on Monday that it is lowering the minimum loan originally announced and increasing the maximum that can be borrowed, and is extending the terms of the loan to five years. The program is part of the Fed’s efforts to bring money to small and medium businesses injured during the coronavirus-induced recession.

Under the new guidelines, the minimum loan will now be $ 250,000, half the amount of previous versions of the plan. The maximum will now vary by facility, but could reach $ 300 million compared to the previous $ 200 million.

Fed President Jerome Powell recently said the program was “a few days away” from his first loan and said the central bank was reorganizing the arrangements based on comments received from thousands of sources.

“Supporting small and medium-sized businesses so they are ready to reopen and re-hire workers will help foster a broad-based economic recovery,” said Powell in Monday’s announcement. “I am confident that the changes we are making will improve the ability of the Main Street loan program to support employment during this difficult time. ”

In addition to changes in loan sizes, the Fed has also extended the repayment period from four to five years and will delay the repayment period to two years from the first year. Interest is also delayed by one year and will be the Libor, a commonly used overnight rate, increased by 3%.

Lenders will now assume only 5% of the loans, with the Fed holding the rest.

The program is part of a dozen measures taken by the central bank to increase lending and liquidity during the coronavirus crisis. Powell has repeatedly stressed that the Fed has “loan but not spend” powers. Main Street and other similar programs are supported by treasury funds that the Fed can leverage. In this case, the Treasury provides $ 75 billion in equity that can be used for $ 600 billion in loans.

Correction: an earlier version misrepresented the amount of loans that banks will hold.

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