Oct 30, 2020 - Economy & Business

Federal Reserve expands lending program for small businesses

Federal Reserve Chairman Jerome Powell stands at a podium.
Federal Reserve Chairman Jerome Powell at a news conference in 2019. Photo: Eric Baradat/AFP via Getty Images

The Federal Reserve said on Friday it would again lower the minimum loan size for its pandemic-era small business program.

Details: Businesses and nonprofits will be able to borrow a minimum of $100,000 from the facility, down from $250,000 — a move that might attract smaller businesses that don't need as hefty of a loan. Since the program launched earlier this year, the minimum loan size has been reduced twice.

  • The Fed also said banks can collect higher fees on these loans, which would encourage banks to lend.

Why it matters: The Main Street Lending Program has received heavy criticism, including from members of Congress who said it doesn't go far enough to help mom-and-pop businesses.

  • Demand has been weak. The program has only doled out 400 loans worth $3.7 billion — a sliver of the $600 billion the facility has the capacity to lend.

The big picture: The change comes as small businesses that have been ravaged by the pandemic might need another lifeline, as higher case counts threaten renewed economic lockdowns.

  • The Fed says the move will "better target support to smaller businesses that employ millions of workers and are facing continued revenue shortfalls due to the pandemic," according to the release.

Yes, but: Fed chairman Jerome Powell has noted that piling on debt might not help small businesses.

  • Rather, forgivable loans — like those offered through the Paycheck Protection Program — would be more helpful, but the Fed can't issue those, Powell says.
  • It's unclear when (or if) another round of PPP is coming. Congress is still deadlocked over another stimulus package.
  • Powell told Congress last month that there was "very little demand" in the facility for small business loans below $1 million.

What's next: The Fed releases a policy decision next week, followed by a news conference on Thursday.

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