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April 13, 2020

Federal Reserve Announces Plans For New COVID-19 Lending Program

On April 9, the U.S. Department of the Treasury and the Federal Reserve announced procedures by which the Fed will distribute $2.3 trillion in additional liquidity to the U.S. economy. As The New York Times explains, “Companies with up to 10,000 workers, or up to $2.5 billion in revenues, will be able to gain access to four-year loans through the program. Banks will originate the loans and retain a 5 percent share, but can sell the remainder—in total, up to $600 billion—to the Fed. The Treasury will provide $75 billion in backup to protect the central bank.”

In a fact sheet about the program, the National Association of Manufacturers explains that, for businesses, these actions include the creation of a new Main Street Business Lending Program and expansions of the Fed’s existing Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility, and Term Asset-Backed Securities Loan Facility. The Fed will also offer term financing to financial institutions originating Paycheck Protection Program loans and establish a new facility to provide loans to states, counties and cities. Specifically:

  • Treasury will invest $75 billion into the Fed’s new Main Street Business Lending Program to enable up to $600 billion in loans to small and medium-sized businesses.
  • Treasury will invest $85 billion into the Fed’s existing Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility and Term Asset-Backed Securities Loan Facility to support $850 billion in liquidity for businesses.
  • Treasury will invest $35 billion into the Fed’s new Municipal Liquidity Facility, which will offer up to $500 billion in lending to states and municipalities.
  • The Fed will support the Small Business Administration’s PPP by extending credit to eligible financial institutions that originate PPP loans.

The program is split into two lending facilities—the Main Street New Loan Facility and the Main Street Expanded Loan Facility. Through the two facilities, banks will be able to originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.

In addition to having fewer than 10,000 employees and less than $2.5 billion in annual revenues in 2019, businesses must be created or organized in the United States or under the laws of the United States. They must also have significant operations and a majority of their employees based in the United States. Businesses can participate in only one of the Main Street New Loan Facility and the Main Street Expanded Loan Facility. Participants in the Main Street program cannot participate in the Primary Market Corporate Credit Facility. Businesses that have received loans under the PPP may participate in the Main Street Business Lending Program.

The program has not yet been implemented. In fact, in a webcast on Friday, April 10, Federal Reserve Vice Chairman Randal Quarles cautioned the program is two to three weeks away from being launched. He said the Fed currently is “putting together the mechanisms for that credit to be distributed through the banks.” Click here for an overview of the program provided by the law firm Covington.