The Federal Reserve’s $600 billion Main Street Lending Program is supposed to provide low-cost loans to firms with fewer than 15,000 workers, but it has taken the Fed nearly three months to launch it and many have criticized it for being too little, too late, The Washington Post reports.
“You’d think after all of this delay, this would launch more smoothly than PPP [Paycheck Protection Program]. As it turns out, it looks like it’s dead on arrival, which is sad,” says Matt Valeo, chief executive of Documo, a software company for secure documents.
Both are multibillion-dollar lending programs aimed at helping smaller and midsize companies, but Main Street is a loan that can be used for any expense. PPP is a grant that doesn’t need to be repaid, as long as most of the money goes toward paying employee salaries. The Fed runs the Main Street program, while the Small Business Administration handles PPP.
PPP had a chaotic launch April 3 as banks struggled to get it running and handle the deluge of customers seeking funds, but it ultimately handed out $500 billion. The Fed’s Main Street program has only just begun.
To get a Main Street loan, businesses have to apply through a bank, which can then sell 95 percent of the loan to the Fed, transferring most of the risk to the central bank.
Some of America’s biggest banks—JPMorgan Chase, Bank of America and Wells Fargo—told The Washington Post they plan to participate, but they have yet to update their websites.
There are two major concerns about the Main Street Lending Program: First, that not enough banks will participate, and second, that not many small and midsize businesses will want the loans because the terms are too onerous and the large minimum loan size could keep some businesses out.
“Banks and businesses to date are showing little interest in the existing program,” former top Fed staffers William B. English and Nellie Liang wrote in a paper released Thursday by the Brookings Institution. “Banks generally say that these are loans they would make anyhow. Potential borrowers say the loans are too expensive and burdensome.”