The Fed said on Friday that it will once again reduce the minimum loan amount for its pandemic-era small business program.
detail: Businesses and non-profit organizations will be able to borrow at least US$100,000 from the agency, which is less than US$250,000. This move may attract small businesses that do not need large loans. Since the program was launched earlier this year, the minimum loan amount has been reduced by two times.
- The Fed also stated that banks can charge higher fees for these loans, which will encourage banks to lend.
Why it matters: The “Main Street Lending Plan” has received widespread criticism, including criticism from members of Congress, who stated that the plan is not enough to help couples operate.
- Demand has been weak. The program only issued 400 loans worth US$3.7 billion, which is only a small part of the agency’s US$600 billion loan.
Big picture: The reason for this change is that small businesses plagued by high epidemics may need another lifeline because the higher number of cases threatens the new economic blockade.
- The Fed stated that this move will “provide better support for small businesses that employ millions of workers and face persistent income shortages due to the pandemic.”
Yes but: Federal Reserve Chairman Jerome Powell pointed out that debt accumulation may not help small businesses.
- Powell said that, on the contrary, forgivable loans (such as those provided through the Salary Protection Program) would be more helpful, but the Fed cannot issue them.
- It is not clear when (or if) another round of PPP will be made. Congress is still deadlocked over another stimulus plan.
- Powell told Congress last month that the facility has “very little” demand for loans to small businesses “under one million dollars.”
What’s next: The Federal Reserve will release its policy decision next week, followed by a press conference on Thursday.