Why is the Fed expanding its business loan programmes?

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The US Federal Reserve is Expanding Business Loan Programmes to Support More Firms Facing Economic Hardship

The US Federal Reserve is broadening the scope of its Main Street Lending Programme to encompass a greater number of businesses. This strategic adjustment aims to provide crucial financial assistance to companies grappling with the economic fallout from the coronavirus pandemic shutdowns. The programme is specifically designed to support small and medium-sized enterprises that exceed the eligibility criteria for the Paycheck Protection Programme (PPP) but still face challenges accessing capital markets.
Increased Eligibility Criteria for Businesses

Following feedback from numerous companies, the Fed has revised the criteria for the Main Street Lending Programme. Businesses are now eligible if they employ up to 15,000 individuals or generate an annual revenue of up to US$5 billion. This represents a significant increase from the initial parameters, which capped eligible businesses at 10,000 employees and US$2.5 billion in revenue. Furthermore, the minimum loan size has been reduced from US$1 million to US$500,000, making the facility accessible to a wider range of firms.
Addressing a Gap in Financial Support

The expansion is intended to assist businesses that are too large to qualify for the PPP, which is administered by the Treasury Department, but are too small to readily access traditional capital markets for financing. By offering these expanded loan options, the Fed seeks to inject liquidity into a critical segment of the US economy that is experiencing a severe downturn due to containment measures. These businesses are subject to restrictions outlined in the CARES Act, including limitations on dividend payments, share buybacks, and executive compensation, until one year after the loan is repaid.
Main Street Loans Differ from PPP

Unlike the forgivable loans provided under the Paycheck Protection Programme, the loans offered through the Main Street Lending Programme are not forgivable. These loans are exclusively available to businesses that were financially solvent prior to the onset of the crisis. Fed Chair Jerome Powell has acknowledged that the demand for these loans might be influenced by companies' potential reluctance to incur additional debt. The Fed is also exploring a similar programme to support nonprofit organisations and is expanding its backstop for PPP loans, allowing more financial institutions to participate in the PPP Liquidity Facility.

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Why is the Fed expanding its business loan programmes?

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