Small Business Lending Changes Hope to Help Struggling Sector

The Fed’s Main Street lending program reduces minimums and fees in the absence of additional stimulus

As it became clear there wouldn’t be passage of a second economic stimulus package from Congress, the Federal Reserve moved to make changes to the rules of its Main Street Lending Program at the end of October. Hoping to incentivize more banks to take advantage of the funds and welcome more small businesses into the lending program, the Fed has announced it would now begin issuing loans as low as $100,000 – previously pegged at a $250,000 minimum – and reduce fees for establishing and maintaining to those loans.

In response to criticisms from lawmakers, community groups, and community bankers that Main Street was ill-suited for smaller businesses, the Fed reduced or eradicated fees associated with smaller loan volumes. According to American Banker: “[L]enders won’t be required to pay a transaction fee for loans meeting the program’s terms that are less than $250,000, which could encourage banks to originate these smaller loans. The Fed, through its special-purpose vehicle, will also pay lenders 50 basis points per year for servicing loans less than $250,000.”

Michael Kushma, Morgan Stanley’s Investment Management CIO of Global Fixed Income interviewed in Yahoo Finance, says, “I think it’s signaling that they can do more, and they will adjust their programs as needed to try to improve the flow-through of the resources they have into the broader economy. We all know that the small, medium-sized enterprises have been most hurt by what’s going on in the pandemic… If you’re a small business, you can borrow money now easier than you could a week ago.” This is welcome news and a critical lifeline for our nation’s vital small businesses that need support as the pandemic endures.

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