United States: Main Street Lending Program

Abstract

In March 2020, as the COVID-19 pandemic caused slowdowns and disruptions to economic activity, businesses faced disruptions to their revenues and experienced increased demand for credit. Yet, as the pandemic worsened the economic outlook, banks tightened credit. Starting on March 17, the Federal Reserve rolled out several emergency programs aimed at capital markets. Most of these programs tended to benefit relatively large companies. On March 23, the Fed said it would introduce a program targeting small and mid-sized companies. On April 9, 2020, the Federal Reserve announced its first design iteration of the novel Main Street Lending Program (MSLP). The MSLP targeted businesses that were too small to have access to public markets but too large to be assisted (or sufficiently assisted) by the Paycheck Protection Program, Congress's forgivable-loan program for small businesses. The Fed later expanded the MSLP to also include mid-sized nonprofit firms. The MSLP purchased a 95% participation share in MSLP-compliant loans made by private lenders. The MSLP was available to hold up to an aggregate $600 billion of loans purchased from participating lenders, supported by a $75 billion equity injection from the Treasury. Designed to help ultimately viable businesses weather a period of disrupted cash flows, MSLP loans matured in five years and deferred interest payments for one year and principal payments for two. All MSLP-eligible loans carried an interest rate of LIBOR plus 300 basis points. In December 2020, Congress mandated the closure of the MSLP on January 8, 2021. In total, the MSLP made $16.6 billion of purchases, its 95% share of $17.5 billion of MSLP lending.

Keywords: CARES Act, COVID-19 crisis, Federal Reserve, market liquidity, nonprofits, small and medium-sized enterprises, SMEs, bank lending, Section 13(3)

JEL Classification: G01, G28