It was billed as a lifeline for America’s middle-market companies seeking cash to get through the pandemic. Yet more than two months since its launch, the Federal Reserve’s Main Street Lending Program isn’t living up to expectations as few banks are willing to provide the loans.
Some of the nation’s biggest lenders have demanded such crushing terms that discussions have stalled from the get-go, while other banks have decided not to participate at all. That’s meant the take-up for the $600 billion program is just 0.2%, threatening to undercut the economic recovery and efforts to protect jobs.
Data-analytics firm IDM is just one example of hundreds of midsize businesses affected by Covid-19 that have been left disappointed.
It was hoping to get a Fed-assisted loan to support payroll, refinance debt and potentially hire more employees. What the Reston, Virginia-based company found instead was banks in West Virginia and Georgia that weren’t taking part, while it wasn’t able to pursue a loan with JPMorgan Chase & Co. because the firm was asked to pledge real estate it doesn’t have.
“We can’t even get out of the box and submit an application,” said John Chung, chief operating officer at IDM, which has $30 million in annual revenue. “This whole thing is kind of a joke.”
Companies impacted by Covid and even those resilient to the outbreak have struggled to find banks willing to lend through the program. Cardinal Capital, a Baton Rouge, Louisiana-based commercial finance brokerage firm, has been looking to borrow about $300 million for various clients. But most of the 60 banks it approached won’t accept new borrowers, or work with new businesses backed by assets that fall outside the lender’s usual purview, the company’s partner Rob Powell said in an interview.
JPMorgan, meanwhile, has had discussions with about 2,000 of its clients about Main Street loans, only to receive applications from about 5% of them, according to a person familiar with the matter who isn’t authorized to speak publicly.
JPMorgan spokeswoman Ashley Frost declined to comment.
Anemic Use
The Fed and Treasury Department started the program on July 6 with the aim of providing loans to companies either too small to access capital markets, or too big to get aid through the government’s Paycheck Protection Program.
Just $1.4 billion of Main Street loans were issued as of Sept. 10, with about $300 million more submitted or being processed, according to the Boston Fed which administers the program. In contrast, blue-chip companies have sold more than $1.2 trillion of corporate bonds since March to help weather the pandemic’s economic impact, and smaller outfits have benefited from hundreds of billions of dollars in potentially forgivable loans.