On June 4, 2020, Chuck Morton was quoted in Inc. regarding the efficacy of the Main Street Lending Program. According to the article, business groups and lawmakers are already trying to change the Federal Reserve’s $600 billion loan program, which is expected to launch this week.
While the program offers loans with low interest charges – the variable rates are equal to LIBOR + 300 basis points, or about 3 percent – they must be repaid. It is expected to run directly through federally insured depository institutions, including banks, savings associations, and credit unions. However, several restrictions – such as limitations on executive compensation and requiring companies to make "reasonable efforts" to retain their employees during the loan term – may make this financing less palatable for some businesses.
"As it's currently structured, it's not helpful," says Morton. "If [businesses] can get money someplace else under terms anywhere close to LIBOR + 300 basis points without the restrictions on payments, they will take that money."
However, since the start of the pandemic, conventional credit markets have begun to seize up. If lenders worried about continued economic fallout turn off the spigot, borrowers may turn to the program, regardless of the terms. Indeed, tighter credit markets could cast the program into a familiar Fed role, says Morton. "If our headline has always been that this is the credit of last resort – guess what, this is the last resort."
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