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Fed lowers minimum Main Street loan size to $100K

The Federal Reserve is lowering the minimum Main Street loan size to $100,000. Yahoo Finance's Brian Cheung shares the details.

Video Transcript

ADAM SHAPIRO: It's Friday, October 30. This is "On the Move." I'm Adam Shapiro, along with Julie Hyman. We want to go straight to Yahoo Finance's Brian Cheung. There is breaking news from the Fed. Brian, what have you got?

BRIAN CHEUNG: Well, Adam, here comes the Federal Reserve, an announcement breaking just now, that they have lowered the minimum size on its loans to small and medium-sized businesses, also known as the Main Street Lending Program. Keep in mind that before, as of June, the Federal Reserve had had the minimum loan size under that program at $250,000. They are now lowering that to $100,000. The Fed says that so far, it's made about 400 loans totaling $3.7 billion or so.

But as we talked about at length on these programs, the Federal Reserve has faced criticism, because that facility can take up to $600 billion in loans. So there's some criticism that maybe the Fed was being too restrictive on this program, hence why the decision today to maybe lower that threshold, again, from $250,000 to $100,000.

And a little bit of small detail on the fee structure of those loans as well. The Federal Reserve says it's not going to charge any transaction fee for the bank lenders that are offering these loans to small and medium-sized businesses, although those borrowers of those loans under $250,000 might have to pay slightly more to the lender to originate the loan. But that's minutia that you really only need to be concerned about if you're a small or medium-sized business looking to take advantage of that Fed Main Street Program.

The Fed for its part, saying in a statement, they did this quote, "to better target support to smaller businesses that employ millions of workers and are facing continued revenue shortfalls due to the pandemic." Again, the Federal Reserve announcing this today outside of any sort of big announcement. But we are looking forward to the Fed's next policy setting meeting on monetary policy, which will happen next Thursday. Adam, Julie.

JULIE HYMAN: Hey Brian, quick follow-up question for you. As you talked about, the Fed has come under some criticism for not giving more loans under this program. Some of that perhaps has been the strictures on it. But do we have any idea of the demand that could potentially be out there with changing these requirements? Or is that not even clear at this point?

BRIAN CHEUNG: Well, it's a bit of a mixed reaction I think from the street likely. When you talk about whether or not banks want to actually offer these loans. I think a lot of them would say, yeah, sure, there's no problem, especially since it comes at such a low cost for us. But the problem is, that all these small and medium-sized businesses, that coffee shop down the street or that small retailer, the last thing that they want right now are more loans. What they would like probably is something like a Paycheck Protection Program loan that can convert into a grant.

But the Federal Reserve has been very adamant in saying these are Main Street loans, they'll have to pay them back. As the Federal Reserve, they cannot do any sort of grants that essentially is just dropping money into people's hands. They can only offer those loans that have to be paid back at some point. Another criticism of the Federal Reserve has also been the pricing of these loans, which is kind of seen through the changing fee structure that I just outlined. Whether or not that's actually impactful remains to be seen.

As I mentioned, in some cases, the borrowers might actually have to pay more to the lender in an origination fee. But regardless, the Federal Reserve would not have done this today if it didn't think it was going to lead to some sort of increase in uptake of its program. It remains to be seen exactly what that's going to be. But again, as I mentioned, so far, only $3.7 billion of the up to $600 billion in loan capacity under this facility. So they definitely have the capacity to take on a lot more if they want to.