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Law360 (June 8, 2020, 9:26 PM EDT) -- The Federal Reserve Board said Monday it is expanding its soon-to-launch Main Street Lending Program to provide support to more small and midsize businesses, rolling out changes after concerns that some companies might miss out on its benefits and some banks may not want to participate.
The changes include a lower loan minimum, higher loan maximums and longer loan repayment periods for the Fed's $600 billion emergency lending program, one of an array of initiatives the central bank has unveiled to help mitigate financial strains created by the COVID-19 pandemic.
The program will purchase qualifying loans made to midtier companies, freeing up participating banks' balance sheets for more lending. Although banks will be expected to retain a small piece of each loan, the Fed said this risk-sharing requirement is also being relaxed for loans made to more highly leveraged companies.
"Supporting small and midsized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery," Fed Chairman Jerome Powell said in a statement Monday. "I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period."
Among other tweaks, the Fed said it's cutting the program's minimum loan amount from $500,000 to $250,000, a move that could allow both smaller companies and smaller lenders to take part in the program. Loan maximums are being raised for each of the three facilities that make up the program, with the largest eligible loan option now topping out at $300 million.
The Fed also said it is extending the term of all loan options to five years and lengthening the loans' principal deferral period from one to two years, giving borrowers more time to repay.
Lenders won't be required to hold as large a stake in the program's riskier loans, either. Previously, the Fed said the program would only purchase 85% of so-called priority loans, an option introduced in April for companies carrying heavier debt loads, but the Fed said Monday the program's participation would be increased to 95% for these loans.
As for a launch date, the Fed said the program should open for lender registration "soon" and will start buying eligible loans "shortly afterwards."
In expanding the program on Monday, the Fed did not adjust the eligibility requirements for prospective borrowers, which still need to have no more than 15,000 employees and 2019 annual revenues of $5 billion or less. But the central bank did say it is looking at ways to provide support to nonprofits, which don't qualify for the Main Street program.
"Nonprofit organizations play a critical role throughout the economy, and the Board is working to establish a program soon for these organizations," the Fed said.
--Editing by Alanna Weissman.
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