The. U.S. Federal Reserve said it is expanding the scope of its Main Street lending program to permit more applications and expand the kinds of loans available.
Under the new rules, businesses with as many as 15,000 workers and revenue of up to $5 billion will be able to apply. The previous limit, when the program was announced April 9, limited applications to business with 10,000 workers and $2.5 billion in revenue.
The Fed also suggested it would provide assistance for nonprofits.
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The changes come amid news the U.S. economy contracted 4.8% in the first quarter as the global economy reeled from the effects of the coronavirus pandemic.
Under the new program, loans are divided into three categories: new, priority, and expanded, with the sizes of the loans determined as a multiple of 2019 adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA).
The maximum loan size is $25 million for priority loans. For loans in the expanded category, the maximum is $200 million or 35% of undrawn or outstanding debt, or six times EBITDA. Loans are made for two to four years at a rate of LIBOR, the overnight borrowing benchmark for banks, plus 3%.
The new and expanded loans require financial institutions to retain only 5% of each loan. Priority loans require retention of 15%.
The Fed has also adjusted the language to require firms to promise they will make “commercially reasonable efforts” to maintain employees rather than the “reasonable efforts” required under the earlier version.
“As part of its broad effort to support the economy, the Federal Reserve developed the Main Street Lending Program to help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic,” the central bank said in a statement.
The Treasury Department will provide $75 billion for the program.
The Federal Reserve said it wrote the new program after reading suggestions from 2,200 businesses, individuals, and non-profits.
A start date for the program will be announced soon.