April 22, 2020
By: Caity Witucki
Contributing Editor, C-Suite Wednesday
C-Suite Wednesday – Community Bankers Push for Changes to the Main Street Loan Program
On April 9, 2020, the Federal Reserve announced that it was establishing a program to support lending to both small and medium-sized businesses that were in good financial standing before the onset of the COVID-19 pandemic. Subsequently, the Federal Reserve released two term sheets, which explained that the minimum loan size under the new program would be $1 million and the interest rate would be an adjustable rate of SOFR plus 250-400 basis points. In light of the information on the term sheets, many community bankers are unwilling or unable to participate in the program.
“Our chief concern with the Program is the minimum loan amount of $1 million,” Independent Community Bankers of America (ICBA) wrote in a letter to the Federal Reserve. “If the Program is going to support both small and medium-sized businesses, the minimum loan amount should be no higher than $100,000. Otherwise, Main Street businesses and community banks will not participate.”
The American Bankers Association (ABA) also voiced their concern. “In the markets that community banks serve, small businesses often have borrowing needs far below $1 million, even in healthy economic conditions,” says the ABA. “Many potential borrowers with a desire to obtain Main Street Loan Program funds will have needs well below the current minimum level. Accordingly, many community banks that are prepared to extend loans to customers with borrowing needs of less than $1 million would find themselves unable, or less able, to participate in the Main Street Loan Program.” To address this concern, the ABA suggested that the Federal Reserve reduce the minimum size for Eligible Loans to $50,000.
As of Saturday, the Federal Reserve had received over 2,000 letters praising the importance of the Main Street Loan Program and requesting changes to support community banker involvement. Other industry requests include more flexibility on the duration of the loans allowed and the maximum size of the loan, as well as giving lenders more discretion on how to enforce capital distribution restrictions imposed on borrowers as a condition of the loan.
Participating lenders are encouraged to comment on the Federal Reserve’s Main Street Lending Program by filling out a feedback form.