- Federal Reserve will stop taking applications to its Main Street Lending Program on Dec. 14, but borrowers are discovering that some lenders have stopped accepting applications before this point
- Deadline set after Treasury Secretary Steven Mnuchin announced the program would not be extended beyond the end of the year
- Some lenders say there is not enough time for the loans to be underwritten and approved before the program ceases
A recent report by CNBC finds that some borrowers hoping to get a loan through the Main Street Lending Program are finding the doors closed to them even if they apply in time to meet the deadline, since lenders are not confident they can approve the loan before the program expires at the end of the year.
Treasury Secretary Steven Mnuchin announced on Nov. 19 that several Federal Reserve lending facilities, including the Main Street program, would not be extended beyond Dec. 31. Mnuchin suggested that the economy has recovered enough that an extension is not necessary, and recommended that $455 billion in unused funding appropriated to the Fed be used for targeted relief for sectors that have suffered the worst losses from the COVID-19 pandemic.
Federal Reserve Chairman Jerome Powell has disagreed with Mnuchin’s assessment, saying the economic outlook remains uncertain. He also said increasing COVID-19 cases and signs of a slowing recovery could result in higher demand on the facilities into 2021.
The Fed announced that it would stop taking applications for the Main Street Lending Program after Dec. 14. However, some banks have stopped taking them before this date, saying they cannot guarantee that they will be able to complete the process of underwriting the loan and receiving Fed approval before the program expires. As a result, borrowers who are turned down have to find another lender accepting applications or potentially seek a loan with a less advantageous interest rate.
The Main Street Lending Program, which was established with the intent of helping small and medium-sized businesses, has been strongly criticized for its stringent requirements and for disbursing only a tiny fraction of its available funding. However, lenders interviewed in the CNBC report said there has been increasing interest among borrowers after the Fed lowered the minimum loan amount from $250,000 to $100,000.
The expiration of the Main Street Lending Program will cut off a potential source of funding for any businesses that are struggling to get through the winter. A proposed bipartisan $908 billion stimulus package includes a revival of the Paycheck Protection Program, which provides forgivable loans to businesses, but the fate of this proposal remains uncertain as Senate Majority Leader Mitch McConnell announced that he continues to favor a $500 billion proposal which has already failed twice when brought to vote.
