In the depths of the financial panic from COVID-19 last year, the Federal Reserve offered to lend to a wide swath of businesses — something it had never done before. Yet it struggled to find takers, the Wall Street Journal reported. The Main Street Lending Program aimed to help pandemic-hit businesses that were too small to borrow in the bond market but might need more help than a small-business loan from the popular Paycheck Protection Program. “There was a program here that looked nice on paper, but in practicality, it has not worked,” said Mike Cazaz, chief executive of Werner Aero Services, a New Jersey supplier of aircraft engines and parts that couldn’t get a loan under the program. Washington, D.C., was happy to rely on the Fed because it had the chops to get a program for medium-size businesses up and running fast. Its apolitical reputation reduced concern about loans being steered to big donors. The Treasury Department became a Fed partner to absorb any loan losses. But the experience revealed the limitations of running a relief program through the Fed and exposed gaps in the government’s ability to deliver aid to companies that can’t raise money on Wall Street. For months, many banks weren’t interested in participating. Demand picked up only in recent weeks after word came that the program would be ending. “There is a cost if, whenever we have [financial panics], we do programs that only help large institutions, because in the long run that makes it much riskier to be a small or medium-size firm,” said Eric Rosengren, president of the Federal Reserve Bank of Boston, which has administered the Main Street program. Many such businesses could fall through the cracks, he said, accelerating a long-running consolidation in which larger companies with access to low-cost credit increase market share. Read more. (Subscription required.)
In related news, thousands of minority-owned small businesses were at the end of the line in the government’s coronavirus relief program as many struggled to find banks that would accept their applications or were disadvantaged by the terms of the program, the Associated Press reported. Data from the Paycheck Protection Program released Dec. 1 and analyzed by the Associated Press show that many minority owners desperate for a relief loan didn’t receive one until the PPP’s last few weeks while many more white business owners were able to get loans earlier in the program. The program, which began April 3 and ended Aug. 8 and handed out 5.2 million loans worth $525 billion, helped many businesses stay on their feet during a period when government measures to control the coronavirus forced many to shut down or operate at a diminished capacity. But it struggled to meet its promise of aiding communities that historically haven’t gotten the help they needed. Read more.
