A pair of former Federal Reserve economists said they think the government should ease the rules on who are able to have fun playing the U.S.'s Main Street Lending Program meant to aid small- to medium-sized businesses (SMBs), The Wall Street Journal (WSJ) reported.
The program is intended to help companies with up to 15,000 employees or less than $5 billion in revenue from 2022, with the Fed offering to purchase around 95 percent of loans produced by banks that meet certain standards.
According to Nellie Liang and William English, who previously led the Fed's divisions of monetary stability and monetary affairs, inside a paper authored by the Brookings Institution, some changes are needed to the program, including increased bank fees.
The higher fees, Liang and English said, would encourage more banks to participate within the program, which has been criticized because of its specific and limiting terms.
The two also recommend enhancing the terms. Under the current terms, loans can be repaid within 5 years and can be delayed for 2 years. Liang and English said there should be extensions to the terms and incentives for those who repay the money they owe early.
The pair also said there should be different rates with respect to the circumstance from the borrower; with changes so that less risky borrowers might have lower rates and simpler documentation. And they said hello would be a positive to allow smaller loans than the current $250,000 amount that was already lowered several other times as smaller banks would be more amenable to participating.
Finally, the 2 said it would be a wise decision to let riskier borrowers go forward with loans when the bank is allowed to hold a lot more than the current Five percent stake within the loan in order to get more capital flowing.
However, both Liang and English said these modifications still might 't be enough to help some businesses when the pandemic continues to wreak financial havoc. They said Congress should be prepared to pass other types of reforms if needed, such as loan forgiveness or guarantees. The Fed currently isn't allowed to forgive loans supported by the CARES Act.
The Main Street Lending Program has expanded several times, PYMNTS reported, with lower minimum loan requirements, higher max limits and adjusted repayments schedules. Fed Chair Jerome Powell said the adjustments would hopefully assist businesses in weathering the pandemic.
