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Fed Encourages Banks to Start Making Main Street Loans

Catarina Saraiva and Christopher Condon

(Bloomberg) -- The Federal Reserve has opened its Main Street Lending Program for small and mid-size businesses, encouraging lenders to start making loans in the much-anticipated program immediately.

Lenders are now able to register through the Boston Fed, which will administer it. The Fed will begin purchasing 95% of loans made through the program’s three facilities “soon,” the Boston Fed said on its website Monday.

“Lenders can find the necessary registration documents on the program site and are encouraged to begin making Main Street program loans immediately,” said the Boston Fed.

The program will lend up to $600 billion through the three facilities, each of which will make slightly different loans to businesses with up to 15,000 employees or $5 billion in revenue last year. Loans will range in size from $250,000 to $300 million for an expansion of existing debt.

Emergency Response

The Main Street facilities were first announced at the end of March as part of the Fed’s emergency response to the coronavirus pandemic. The program has been expanded twice since, in attempts to make sure it would be utilized by a broad swathe of American companies after facing criticism from lawmakers and business groups that said it wouldn’t have wide enough reach.

The facilities mark the first time the Fed will directly support America’s so-called Main Street firms. The loans are meant to reach those that may not be able to easily access capital markets for borrowing or to raise equity, but are too large to tap the Small Business Administration’s Paycheck Protection Program loans, which are meant for businesses with fewer than 500 employees.

The program has taken time to set up and presents new challenges to the Fed, such as how to lend to companies that don’t have official designations from ratings companies. Fed Chair Jerome Powell said in May that the Main Street facilities were the most challenging to set up.

It’s backed by a $75 billion investment from the Treasury Department that’s part of the $454 billion allocated by Congress in the CARES Act for the Fed’s emergency-lending programs. The central bank has said it will disclose lender, borrower and loan details of the CARES Act programs on a monthly basis.

(Updates with program details starting in fourth paragraph.)

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