The Federal Reserve set up the Main Street Lending Program to provide capital to small and medium-size business as they come out of the pandemic, but two local bankers say the current restrictions have made the effort a dead end.
Washington Trust Bank of Spokane is one of only about 200 of the 5,000 lending institutions nationwide that have signed up to offer the loans provided by the Fed. The loans are for five years and offer some flexible terms on the front end, such as deferring interest for a year.
However, the guidelines about income and debt service are so restrictive that few businesses would qualify, said Jack Heath, Washington Trust’s president and chief operating officer.
“I just don’t think you will have many customers qualify for it unless they were highly profitable going into the year,” Heath said. “If you could qualify and need the liquidity, it might be a very good program. But the universe of customers who would qualify would be very limited.”
None of the 200 banks that have signed up to deliver the loans have made any yet, according to the Associated Press.
The sluggish start is in sharp contrast to the reaction that greeted the Treasury Department’s small-business lending efforts, known as the Paycheck Protection Program.
That program, which Congress just voted to extend, set off a frenzied response from millions of desperate small companies seeking a loan. The first $350 billion in PPP funding ran out in just two weeks before being replenished. Congress agreed to forgive the loans if they were mostly spent paying workers.
The Fed has come under criticism from a congressional watchdog for quickly taking steps to ease the flow of credit for large corporations but doing little for smaller companies.
Greg Deckard, president and CEO of State Bank Northwest of Spokane, said the Main Street Lending Program as currently written will do nothing to ease that criticism of the Fed.
“We have not signed up. We never intended to sign up,” he said. “It’s fraught with problems.”
Deckard, who also serves as treasurer for the Independent Community Bankers of America, said he and the ICBA have researched the Fed loan program and didn’t find anything they liked.
“Most community banks didn’t have the demand from their customers for the program at the same time the PPP was going on,” Deckard said. “It’s just a really overly complicated set of rules and regulations.”
Federal Reserve Chairman Jerome Powell said in prepared remarks released Monday that the PPP has apparently met the immediate credit needs of many small businesses.
“In the months ahead, Main Street loans may prove a valuable resource for firms that were in sound financial condition prior to the pandemic,” Powell said.
Heath said he researched his clients and found only two in the Spokane area for which the Fed’s loan program may make sense.
“We don’t anticipate them taking part in the program at this point,” he said of the clients. “We did register for the program in case they do modify the terms … to make it more open for our clients to participate.”
One key drawback is that companies can’t use the Fed program to pay down existing debt.
“For someone who needs to restructure existing debt or needs smaller payments over a longer period of time, this would not work,” Heath said.
Companies with up to 15,000 employees or $5 billion in revenue are eligible for Main Street. The loans can range from a minimum of $250,000 to a maximum of $300 million. The Fed has said it will purchase up to $600 billion in Main Street loans from banks. The Treasury has provided $75 billion in taxpayer funds to absorb any losses.
Deckard said the Fed initially set the minimum amount for the Main Street program at $1 million. That figure has since been slashed to $250,000, but the requirement problems remain.
“Upon the initial review, and talking to some of our largest borrowers, there was no interest,” Deckard said. “So, we quickly determined it wasn’t something we would take advantage of.”
However, that hasn’t stopped bankers from around the country calling Deckard with questions about the program.
“When I read it, I said nobody is going to use this or qualify for it,” he said. “Let’s just say it was ill-conceived from the outset.”
Spokane International Airport was not on the list of airports receiving funding.
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