The Federal Reserve’s Main Street Lending Program, intended to give support to small- to medium-sized businesses (SMBs) during the pandemic, has only disbursed $17.5 billion, around 3 percent of its total $600 billion, Bloomberg reported, citing data released by the central bank.
The program seemed to run into myriad issues from the beginning, with a sluggish rollout, only opening to borrowers in July, Bloomberg reported. Through December, the program seemed a metaphor for all the issues present when trying to aid this specific sector of the economy. Companies were larger than the SMBs applying for Paycheck Protection Program (PPP) loans but too small to access capital markets.
The program didn’t go as far as it could have because of banks thought they hadn’t been adequately compensated to deal with the riskier borrowers, Bloomberg reported. Healthier companies often just got regular loans, allowing the banks to reap the entire benefits of the transaction.
The Main Street program saw the Fed buying up 95 percent of the banks’ loans for a total of $16.59 billion, Bloomberg reported, and the initiative was reinforced by the $75 billion Congress approved in the CARES Act. That program shut down Jan. 8 after then-Treasury Secretary Steven Mnuchin ordered it to be gradually diminished.
New Treasury Secretary Janet Yellen said the program hadn’t been successful at getting funds to their intended places. She said the President Joe Biden administration would try to help that sector more efficiently.
In September, PYMNTS reported on the cash crunch for Main Street SMB lending, with the outlook scanty even as the Fed lowered its threshold twice, the second time down to $250,000. That slow uptake came while banks only held 5 percent of the loans on the books, with the Fed holding the other 95 percent.