By Nick Timiraos
The Treasury Department and Federal Reserve said Tuesday they had extended the cutoff date for the Main Street Lending Program, which was initially set to close this Thursday, to Jan. 8 to process a last-minute crush in loan approvals.
Treasury Secretary Steven Mnuchin last month declined to grant an extension to several emergency-lending programs run by the Fed, including the Main Street Lending Program, which is designed to support lending to small and midsize businesses and nonprofits disrupted by the coronavirus pandemic.
As a result, the program stopped accepting loans on Dec. 14, but it witnessed a flood of loan submissions leading up to that deadline. A virus relief package signed by President Trump on Sunday also requires the Fed to close the emergency lending programs this year, but it allowed completed Main Street loans to be processed until Jan. 8.
As of Dec. 23, the Fed had funded more than $15 billion in loans through the program, an increase from $6 billion in loans funded just four weeks earlier, according to filings released Monday.
The program initially saw limited uptake as banks balked at processing loans for a new government program. Under the program, the Fed was willing to purchase up to $600 billion in loans made to eligible businesses and nonprofits by banks. The Fed is buying 95% of those loans from banks that originate them.
But some banks, especially smaller community banks, have become more comfortable with the program, and the prospect that the program would go away at year-end appeared to drive a final surge in demand.
"The fact that we've seen a spike in volume at this time highlights that there certainly was demand for many midsize firms and nonprofit organizations to use the facility under the terms that we already had," said Eric Rosengren, president of the Federal Reserve Bank of Boston, in an interview earlier this month. The Boston Fed is administering the program.
The program's terms were subject to the approval of the Treasury Department, which provided $75 billion to cover losses sustained on any loans. Main Street loans carry a rate of 3 percentage points above short-term interbank lending rates and have five-year terms. They allow borrowers to delay principal payments for two years and interest payments for the first year.
"What we've highlighted is you could do a successful program, but how you set the program up does make a difference," said Mr. Rosengren. "Depending on how much risk and how much loss you were willing to take on, I think it could have reached a larger set of midsized firms and nonprofit organizations."
(END) Dow Jones Newswires
December 29, 2020 11:21 ET (16:21 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.