By Howard Schneider and Jonnelle Marte
WASHINGTON (Reuters) – The U.S. Federal Reserve eased the terms of its “Main Street” lending program on Monday, lowering the minimum loan size from $500,000 to $250,000 and lengthening the term from four to five years to encourage more businesses and banks to participate.
In an announcement, the central bank also encouraged lenders to start making the loans to small and medium-sized businesses “immediately” once they are registered with the Fed to participate in the program.
The changes address concerns raised by some lenders, lawyers and small business consultants that the previous minimum loan amount of $500,000 was too large to help many businesses affected by the coronavirus pandemic.
“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Federal Reserve Chair Jerome Powell said. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period.”
Some small lenders previously said they were worried about taking on too much risk. But the Fed is further minimizing the downside for banks and credit unions that participate by purchasing 95% of all loans issued through the program. Previously, the central bank agreed to purchase 85% or 95% of the loan, depending on the type of loan.
The Fed also gave businesses more time to repay their loans, which could help small businesses that would otherwise struggle to pay back the loans. Loans will now last five years and borrowers will not owe payments on the principal for the first two years. Previously, loans were set to last four years, with no payments due the first year.
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