COVID-19

Federal Reserve loan program targets mid-size businesses

Justin Ho Jun 3, 2020
Heard on: Marketplace
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A worker restocks groceries at a supermarket in Brooklyn in March. The Main Street Lending Program offers loans that would likely be hard for businesses like grocers or cafes to pay back. Angela Weiss/AFP via Getty Images
COVID-19

Federal Reserve loan program targets mid-size businesses

Justin Ho Jun 3, 2020
A worker restocks groceries at a supermarket in Brooklyn in March. The Main Street Lending Program offers loans that would likely be hard for businesses like grocers or cafes to pay back. Angela Weiss/AFP via Getty Images
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The Paycheck Protection Program loans are aimed at helping the country’s smallest businesses make it through the pandemic. This week, the Federal Reserve will be rolling out another loan program aimed at larger businesses called the Main Street Lending Program.

When you look at the details of the program, Karen Petrou, managing partner at Federal Financial Analytics, said maybe the name’s a little misleading.

“It’s only the ‘Main Street’ program if the Main Street in your town looks a lot like Park Avenue,” she said.

Businesses with as many as 15,000 employees may apply. Loan sizes range from $500,000 to $25 million. Petrou said that’s not much for a company like General Motors, but it is for small businesses.

“Small grocers, cafes, restaurants, hairdressers, car repair shops — many of them never see a half a million dollars in annual revenue, let alone could pay back a loan that big,” Petrou said.

The program’s more likely to appeal to specialized manufacturers, like software companies and other mid-sized businesses, according to Matt Hetrick, who runs the accounting firm Harmony Group.

He said for some of those companies, borrowing money might make sense in the long run.

“What’s the cost of losing all of that talent or shutting this thing down versus the cost of borrowing some money to get through an expected loss period?” Hetrick said.

Smaller companies may not be able to apply for these loans, but they’ll benefit, said Jeremy Swan at the accounting and advisory firm CohnReznick.

“Let’s just say that you are a small local grocery store. Who are your suppliers? Typically, they’re going to be the medium- and largest-size businesses,” Swan said.

The Fed’s charging more interest than the PPP program, and these loans can’t be forgiven. Businesses will have to pay them off in four years.

Nathan Rogge, president and CEO of the Bank of Southern California, said that’s not enough time for many of his clients.

“These are clients that are clearly in duress. They don’t know where things are going,” Rogge said. “When you give them a loan with such a short amortization, it’s really hard to get comfortable with it.”

Congress appropriated almost $700 billion for the Paycheck Protection Program, but Fed Chair Jerome Powell has said there basically won’t be a limit to this one. The Treasury and Federal Reserve can simply make more funds available.

Since the money won’t run out, Rogge said a lot of businesses are holding off.

“Businesses and banks are in a position of ‘let’s wait and see exactly how this works. I just don’t feel that urgency to have an application in the day that it opens up,'” Rogge said.

In the meantime, he’s been helping clients apply to other federal and state loan programs with longer repayment windows.

COVID-19 Economy FAQs

New COVID-19 cases and deaths in the U.S. are on the rise. How are Americans reacting?

Johns Hopkins University reports the seven-day average of new cases hit 68,767 on Sunday  — a record — eclipsing the previous record hit in late July during the second, summer wave of infection. A funny thing is happening with consumers though: Even as COVID-19 cases rise, Americans don’t appear to be shying away from stepping indoors to shop or eat or exercise. Morning Consult asked consumers how comfortable they feel going out to eat, to the shopping mall or on a vacation. And their willingness has been rising. Surveys find consumers’ attitudes vary by age and income, and by political affiliation, said Chris Jackson, who heads up polling at Ipsos.

How many people are flying? Has traveled picked up?

Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.

How are Americans feeling about their finances?

Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.

Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.

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