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COVID-19

The Fed wants to lend money to more small businesses, but many aren’t interested

Justin Ho Nov 2, 2020
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A bartender prepares to open his bar in Ocean City, Maryland, amid the pandemic, May 29, 2020. Alex Edelman/AFP via Getty Images
COVID-19

The Fed wants to lend money to more small businesses, but many aren’t interested

Justin Ho Nov 2, 2020
Heard on:
A bartender prepares to open his bar in Ocean City, Maryland, amid the pandemic, May 29, 2020. Alex Edelman/AFP via Getty Images
HTML EMBED:
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The Federal Reserve is making some changes to its Main Street Lending Program, which is supposed to be for small and midsized businesses.

It hasn’t been nearly as popular as the Paycheck Protection Program — the Fed has only made around 400 loans so far. Now, it says it’s lowering the minimum amount businesses can borrow to $100,000.

By allowing businesses to take out smaller loans, the Fed says it’s hoping more businesses will participate.

“We can definitely find places to use the money,” said Ashwin Deshmukh, owner of the Manhattan cocktail bar Short Stories. He said he’s in the process of applying for a Main Street loan.

Unlike his Paycheck Protection Program loan, this one would not be forgivable, and it would have to be paid back in five years.

“It gives us a little pause to take on something we have to pay back on like a five-year basis, when most businesses don’t know if they’re going to be around in five months, let alone five years,” Deshmukh said.

The loan’s interest rates are north of 3%.

Matt Hetrick runs the accounting firm Harmony Group. “You’re talking about loans that have terms that are very, very similar to loans that you’d get from banks, say, before the pandemic.”

There are some businesses that could benefit from the Fed’s program, said John Lanza at the accounting and advisory firm CohnReznick, like bigger businesses with a few hundred employees and businesses that had plans to expand before the pandemic. 

“We hope to open up a new location in the end [of] 2020. We hope to start a new business in 2021,” Lanza said. “These funds could potentially be used for that.”

But that brings us back to the issue of business confidence. Hetrick said in today’s environment, “there can’t be a lot of businesses out there, especially in the small business community, that are sitting there saying, ‘Hey, I feel a lot better about what I can see four years from now; I’m going to be great.'”

Two bankers who deal with many small businesses told me they just don’t see any point in their clients hitting up the Main Street Lending Program.

COVID-19 Economy FAQs

So what’s up with “Zoom fatigue”?

It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.

How are Americans spending their money these days?

Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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