Hundreds of Billions in COVID Relief Remains Untapped: Here's Why.
By: Jake Willms, Quantitative Analyst
The Federal Reserve made a change to the their “Main Street lending program” this Friday aimed at helping struggling small businesses in the wake of this extended coronavirus crisis. With hopes for a new stimulus deal shrinking, the Fed is taking matters into their own hands by lowering thresholds for loans, from $250,000 to $100,000. This expands access to funding for businesses who couldn’t quite afford their previous threshold.
The Main Street lending program has the capacity to issue up to $600 billion in loans to eligible businesses, and so far, it has only issues $3.7 billion. Critics have questioned the fairness of their loan terms and whether the risk taken on by the program was justified. No matter what the reason, as it currently stands there’s hundreds of billions of dollars sitting there untapped and ready.
Fed chairman Jerome Powell has suggested in the past that the Paycheck Protection Program (PPP) is better suited for the majority of businesses, citing challenged to estimate the proper loan agreements for the hundreds of thousands of small businesses in need. This challenge may explain the weak interest in the Main Street program and large sums of funding remaining unused. Still, Friday’s changes appear to be the first steps taken to make these loans more accessible.
The fate of this money – and its reluctance to be lent out to businesses in need – are putting the limitations of the pandemic relief on full display. Only time will tell how much funding ends up getting used, and whether a potential new stimulus deal further changes the available options.