Unprecedented government stimulus has allowed more companies to borrow at lower rates than ever before. Yet amid the credit boom, smaller firms that power America’s economic engine are often being shut out, hamstringing the recovery just as it begins.

The Federal Reserve’s pledge to use its near limitless balance sheet to buy corporate bonds has aided stricken airlines, oil drillers and hotels. It’s also helped companies from Alphabet Inc. and Amazon.com Inc. to Visa Inc. and Chevron Corp. access some of the cheapest financing ever seen. All told, firms have sold about $1.9 trillion of investment-grade debt, junk bonds and leveraged loans this year, according to data compiled by Bloomberg.

But for companies not large enough to tap fixed-income markets, the outlook is much more dire. Banks are tightening conditions on loans to smaller firms at a pace not seen since the financial crisis, while many direct lenders that have traditionally focused on the middle market are pulling back or turning to bigger deals instead. What’s more, the Fed’s emergency lending programs for mid-sized businesses and municipalities have been criticized as slow, complex, and largely inaccessible.

A lack of credit for small and medium-sized firms could tip many into bankruptcy, adding to the thousands of local businesses that have already quietly disappeared amid the pandemic’s mounting devastation. Given the sector employs roughly 68 million Americans -- Fed Chairman Jerome Powell calls it America’s “jobs machine” -- and is critical to regional economies across the U.S., a prolonged inability to access financing runs the risk of stalling the nascent rebound.

“The Fed actions have moved issuers that are big enough in front of the velvet rope, and those that aren’t stay outside,” said Peter Atwater, founder of research firm Financial Insyghts and an adjunct lecturer of economics at university William & Mary. “Capital markets access has become a determiner of life or death for business.”

That’s not to say the Fed’s current policy approach is necessarily misguided. In fact, many economists commend its quick and decisive actions when the pandemic hit and say those bold steps were key in staving off another financial crisis and possibly even a depression. But amid such large-scale intervention, certain parts of the economy are clearly benefiting more than others -- the big and powerful over the small and financially vulnerable, a disparity that to some degree mirrors the broader inequality problems that have been exposed by the pandemic.

Worst of Times, Best of Times
The Fed announced its corporate bond-buying plan in March, opening the issuance floodgates after the coronavirus outbreak brought the market to a virtual standstill. Investment-grade firms have borrowed more than $1.3 trillion in 2020, a record pace, while junk-rated companies have sold $274 billion of bonds, according to data compiled by Bloomberg. In addition, they’ve priced over $270 billion of leveraged loans.

Alphabet’s $10 billion bond sale earlier this month saw record-low yields on the seven-year portion, besting levels set by Amazon in June. Chevron priced a two-year bond with an unprecedented 0.333% coupon earlier this week, while Visa issued seven, 10- and 30-year notes that all beat or matched previous records.

On the high-yield side, aluminum-packaging company Ball Corp. sold $1.3 billion of 10-year notes at 2.875% on Monday, the lowest ever for a U.S. speculative-grade offering with a maturity of five year or longer.

“It’s a battle between the Fed’s $750 billion special purpose vehicle to buy corporate investment-grade and high-yield bonds and those who don’t have access to this free money,” said Stephen Blumenthal, chief executive officer at money manager CMG Capital Management Group Inc.

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