WASHINGTON — Federal Reserve Chairman Jerome Powell said Main Street Lending Program loans are not in high demand, but he reiterated the central bank’s commitment to continue making adjustments that could attract more borrowers.
The program, aimed at helping small and midsize businesses stay afloat during the coronavirus pandemic, is making loans available through third-party banks to companies with up to 15,000 employees or up to $5 billion in annual revenue.
Banks have been able to register as eligible lenders since June 15 with the Federal Reserve Bank of Boston, which is administering the program. Once that registration process is complete, banks can begin making Main Street loans under the appropriate terms.
Powell told the House Financial Services Committee Tuesday that about 300 banks have registered as lenders so far, and that the Fed has had “a lot of interest” from lenders looking to participate.
But banks aren’t reporting an influx of demand from potential borrowers, he said.
“What the banks tell us is that it’s sort of a mixed thing,” Powell said. “They’re not getting a ton of interest from borrowers, and many say they expect that to change over the course of the next few months.”
Fed Chairman Jerome Powell says the Fed is open to making tweaks to the Main Street Lending Program, but that it has not yet considered eliminating the minimum loan amount of $250,000.
The $600 billion Main Street Lending Program — which was established using funding appropriated to the Treasury Department from the coronavirus relief package — has been met with criticism from some who feel that the minimum loan of $250,000 is simply too high to work for many smaller businesses, and that the calculations that determine the appropriate loan amount would disqualify some companies.
“For many nonprofits and small businesses, earnings before interest, taxes, depreciation and amortization is not widely used metric,” said Rep. Lacy Clay, D-Mo.
Powell said that while EBITDA is a “widely used” metric, there are many other metrics that the Fed is considering along with Treasury.
“One of them — probably the next one in line — is something along the lines of asset-based and that’s something we’re looking at with the Treasury.”
Treasury Secretary Steven Mnuchin also testified alongside Powell Tuesday in a hearing to examine the execution of coronavirus relief.
But Powell said the Fed has not yet considered eliminating the minimum loan amount of $250,000.
“We can, once we get up and running, look at lowering it again, but you get into a very different kind of lending when you’re down lower, and these are really personal loans rather than business loans,” he said. “We could look at that, but that would be something we’d look at once we get up and running.”
Both Mnuchin and Powell also addressed commercial real estate, which some have identified as the pandemic’s next major credit risk, and said they have looked into establishing an emergency lending facility under the Fed’s 13(3) authorities.
“This is a problem we have not addressed yet,” said Rep. Andy Barr, R-Ky., adding that commercial real estate borrowers are unable to service their debt without incoming revenue. “I think we’re going to see, without intervention, a wave of foreclosures and defaults.”
Mnuchin said Treasury and the Fed have not yet figured out a way to set up an emergency lending facility for commercial real estate.
“It’s not out of a lack of interest or a lack of desire,” he said. “There are structural problems.”
Mnuchin added that direct fiscal support might be more beneficial for commercial real estate borrowers as opposed to saddling them with more debt.
“One of the things we want to look at … is additional support for these hardest-hit industries,” he said. “As [Powell] has said, there’s a difference between lending and spending.”
Powell agreed that “more debt may not be the answer here.”
“Debt doesn’t solve every problem,” he said. “You’ve got people who can’t currently service debt, you’ve got these inflexible arrangements, and so there’s a serious problem here that needs to get fixed and we’re racking our brains to see how it could be something we could do by lending.”