Unlike the strong demand for the Paycheck Protection Program, which saw $350 billion in aid snatched up in the 13 days following its debut, interest in the Main Street Lending Program has been more muted; less than $100 million in aid was requested in the program’s first month, according to data from the Federal Reserve. But that may change, possibly even radically, in the wake of the PPP expiring on Aug. 8 and growing uncertainty around future fiscal aid.
While a comprehensive deal to provide additional relief is expected at some point, the degree of aid to businesses – including those affected the most by the pandemic – has yet to be finalized. This next round of aid is likely to be the last provided by fiscal authorities until after the election.
Compared to the Paycheck Protection Program, interest in the Main Street Lending Program has been more muted.
With the election less than 90 days away, it is also important to remember what we have experienced in the past 90 days. The United States has seen a soaring number of COVID-19 cases, but also the resiliency of our markets to remain operational and the ability of many people to adapt to a full economic stop.
Yet as the pandemic has reached new heights in recent weeks, there is a growing realization that without a vaccine, we will not achieve full economic recovery. The damage to small and medium-size businesses will only grow.
MSLP is not PPP
Much has been written about the lack of demand for the Main Street Lending Program, but this has been written in context or comparison to other programs, such as the Paycheck Protection Program. The MSLP, after all, was not designed to replace the PPP; rather, it was set up to supplement it.
Now that the application window for PPP loans has closed, the need for the MSLP has never been greater if small and midsize businesses are to survive until a vaccine is developed and distributed.
It is during this elongated, and at times frustrating, period that the full potential of the MSLP will come into view as a source for longer-term bridge financing.
Changes to MSLP are needed
As Main Street continues to feel economic pain, further adjustments to program terms and overall structure will be needed. Adjustments for policymakers to consider should include:
- Lowering the current minimum loan size from $250,000 to $100,000 to allow more small businesses the opportunity to participate
- Extending the loan term by creating a range of five to seven years for repayment rather than the current five-year term
- Adjusting how the multiples are used to calculate loan size by moving to a range – say, 4x to 10x – that allows financial institutions more room to work with affected borrowers within their respective underwriting parameters, thereby accommodating borrowers that may have historically operated with lower margins before the pandemic
These are just some of the possible changes that could help drive program demand. Further changes to this program by the Federal Reserve and U.S. Treasury are needed to meet the real economic needs of Main Street and encourage U.S. lenders to do what they’ve been doing well in the years since the Great Recession – lend to their customers, especially those in need.
Although MSLP demand will increase even without these changes, such adjustments will help the program reach its maximum potential. It is important that businesses hurt by the pandemic can obtain aid as we move forward in an environment where additional rounds of fiscal aid may become less likely.
For more information on how the pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.