The Federal Reserve has updated its guidance for banks on the use of the Main Street Lending Program in an attempt to prompt greater use of the $600 billion relief program. As of last week, only 0.2% of the program’s cash had been tapped.
Produced in partnership with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, the updated frequently asked questions emphasizes that lender underwriting should look back to the borrower’s pre-pandemic condition and forward to their post-pandemic prospects. Many banks have expressed concerns over how regulators might treat loans to firms whose revenues have been significantly harmed by the pandemic.
“Supervisors will not criticize Eligible Lenders for originating Main Street loans in accordance with the Program’s requirements, including cases when such loans are considered non-pass at the time of origination, provided these weaknesses stem from the pandemic and are expected to be temporary or if such loans are part of a bank’s prudent risk mitigation strategy for an existing borrower,” the updated guidance states.
The Fed and Treasury Department launched the program on July 6 with the aim of providing loans to companies either too small to access capital markets, or too big to get aid through the Small Business Administration’s Paycheck Protection Program. The program is available to businesses with fewer than 15,000 employees or less than $5 billion in annual revenue. Nonprofit organizations that have been in operation for at least five years, have at least 10 employees and an endowment of no more than $3 billion are also eligible to apply for a loan. Eligible companies can receive a loan of up to $300 million through the program.