The Main Street Lending Program is aimed at helping midsize businesses.
Photo: Jae C. Hong/Associated PressWASHINGTON—The government is offering to lend up to $600 billion to help small and midsize businesses weather the coronavirus-induced recession, but so far interest has been sparse.
Under the Main Street Lending Program, commercial banks lend to companies and then sell all but a small portion of each loan to the Federal Reserve. The Treasury Department stands ready to cover the Fed’s losses if companies fail to repay.
More than two months after the program was announced, however, some bankers say they are still trying to decide whether to take part. They cite less-than-appealing terms, which changed repeatedly before the official June 15 launch, and anemic interest among potential borrowers.
The central concern: Companies in dire need of cash aren’t likely to be approved, while more creditworthy borrowers are likely to find similar or better terms on their own.
“It’s a little bit of a Catch-22,” said Lauren Anderson, senior vice president at the Bank Policy Institute, whose 42 members include the largest U.S. banks. “We’re all kind of struggling, to be honest, to figure out who this sort of unicorn borrower might be.”
More on the Main Street Lending Program
The Main Street program was intended to fill a gap in the government’s stimulus efforts. The Paycheck Protection Program of forgivable loans is aimed at smaller businesses with 500 or fewer employees. The Fed has a separate program to buy debt issued by large corporations such as Apple Inc. and Verizon Corp.
Federal Reserve Chairman Jerome Powell said in a congressional hearing Tuesday that around 300 lenders had begun the process of registering for the Main Street program. There are almost 11,000 federally insured banks and credit unions that could be eligible to sign up.
“We’ve had a lot of interest,” Mr. Powell said. “What the banks tell us, though, is sort of a mixed thing. They’re not getting a ton of interest from borrowers,” He said the Fed is open to making further adjustments to the program.
Banks that take part would underwrite and process five-year loans of between $250,000 and $50 million at an interest rate that currently stands between 3.17% and 3.3%. The program can also be used to boost the size of existing loans up to $300 million.
A big potential draw for borrowers: no payments of principal during the first two years of the loan, and no interest owed during the first year.
For lenders, the program is a relatively low-risk proposition because a specially created Fed facility would buy a 95% stake in each loan, leaving the originating bank with just 5%. Banks can also collect a 1% fee on the loans.
But some aspects of the program have given banks pause.
Because principal payments are deferred for two years, 70% of each loan will be due in a lump-sum payment at maturity. If a borrower were unable to make that payment, a bank would need to either to refinance the loan—and assume all of the credit risk—or force the borrower into default to limit potential losses.
“There will be an issue after term,” said Tom Iadanza, chief banking officer at Passaic, N.J.-based Valley National Bank. Most of the 20 or 30 companies that asked the bank about the program lost interest after hearing the terms, he said. By contrast, the bank, which has $39 billion in assets, approved about 12,000 forgivable loans under the Paycheck Protection Program.
Jerome Powell, left, said that around 300 lenders had begun the process of registering for the Main Street program. Seen here with Steven Mnuchin, U.S. Treasury secretary, on March 6.
Photo: Andrew Harrer/Bloomberg NewsMain Street loans also can’t be used to pay down existing loans and would have to be equal or senior to other debts in bankruptcy. Bankers said this feature, intended to limit the Treasury’s losses, will also make them think twice about participating.
Lisa Peters, whose catering business in the Sacramento area has about $5 million in annual revenue, said she asked her bank recently about the Main Street program. Her lender, Redding, Calif.-based Merchants Bank of Commerce, told her it hadn’t decided whether to participate.
Jim Sundquist, chief financial officer at Merchants, said in an email to the Journal that the program’s terms “are too restrictive” and would, in his understanding, prevent lenders from asking borrowers to repay other debt until the Main Street loan was repaid in full.
The slow start for Main Street contrasts the Paycheck Protection Program, which was also created by the coronavirus relief act that Congress passed in March. That program, run by the Small Business Administration, saw thousands of lenders approve millions of loans within weeks after launching in early April and has since doled out more than $500 billion.
SHARE YOUR THOUGHTS
Do you think the Fed’s lending programs will be enough to bring the economy out of recession, or will Congress need to authorize additional spending? Join the conversation below.
“You’re not going to see the volumes that you saw on PPP,” said Jeffrey Kung, a managing director at Providence, R.I.-based Citizens Financial Group who is helping to lead the bank’s charge in the Main Street program. “This is a loan, it’s not a grant, so it needs to be underwritten in a way in which we believe that a loan would be repaid.”
Mr. Kung said Citizens is enthusiastically participating in Main Street and has “a couple of initial prospects” lined up to potentially borrow through it. But he said the program is “exponentially more complex than the PPP” and tailored to the needs of a much narrower set of companies.
Government and industry officials say the program is partly a victim of the Fed’s success in thawing credit markets that froze in March, when companies and investors were in a state of panic.
With borrowing costs near record lows, creditworthy businesses might not be tempted by the rates offered through the Main Street program, several bankers said.
“They’ll probably get a longer-term payment structure and they’ll probably get a rate around the same rate,” Mr. Iadanza said of creditworthy companies that shop around outside Main Street.
Officials also said the program could prove helpful if a prolonged economic downturn or second wave of lockdowns begins to strain banks’ balance sheets, however.
“Main Street is basically a safety net,” a senior Treasury official said. “When I speak to the senior executives of the major bank, they say, ‘Well, if we get a second wave of the virus and the economy turns down again, we may all need Main Street.’”
Related Coverage
Write to Paul Kiernan at paul.kiernan@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
"street" - Google News
July 01, 2020 at 09:01PM
https://ift.tt/31FB6NP
Fed’s $600 Billion Main Street Lending Program Sees Lukewarm Interest - The Wall Street Journal
"street" - Google News
https://ift.tt/2Ql4mmJ
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
No comments:
Post a Comment