Main Street Lending Program Borrowers Challenged by High Interest Rates

The Federal Reserve’s pandemic-era Main Street Lending Program reportedly had $1.23 billion in interest and principal payments in default as of Oct. 31.

The program delivered $17.5 billion in loans, with much of it having been repaid, but some borrowers are struggling with high interest rates, balloon payments and post-pandemic changes in their customers’ behavior, Bloomberg reported Friday (Nov. 22).

Created for mid-sized businesses that were too big to participate in the Paycheck Protection Program and too small to turn to capital markets, the Main Street Lending Program made 1,830 loans of $100,000 to $300 million, according to the report.

The rates on the loans are adjusted, which proved to be a burden on borrowers as interest rates leaped after the pandemic, the report said.

In addition, the loans had a repayment schedule that included no payments for the first year, leaving borrowers with payments that rose as interest rates rose, per the report.

Some borrowers have also been challenged by changes in how people live, work and shop after the pandemic, the report said. For example, businesses that expected to serve customers around office spaces have been impacted by the shift to remote work.

At the same time, some defaults were to be expected because the Main Street Lending Program was meant to help businesses that were too risky for traditional loans, per the report.

A Fed spokesperson said in the report the program aimed to provide “much-needed loans to small- and medium-sized businesses and nonprofits that were in sound financial condition before the pandemic, but that were hurt by the sudden reduction in economic activity through no fault of their own. The program, along with other efforts, helped keep workers employed and businesses afloat during a very difficult and uncertain time.”

The Main Street Lending Program differed from the Paycheck Protection Program in that it was geared toward mid-sized businesses, charged higher interest and its debts were non-forgivable.

It was reported in September 2020 that the Main Street Lending Program had relatively few takers. At that point, the program had extended $1.2 billion out of a total lending capacity of $600 billion across three facilities.

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