Report Confirms Watchdog Findings About Main Street Lending Program’s Failure To Effectively Support Businesses
Significant Issues With The Main Street Lending Program
WASHINGTON, D.C. – Minutes ago, the Congressional Oversight Commission (COC) released its August report on the CARES Act. In keeping with a recent analysis by government watchdog Accountable.US, the COC found significant issues with the Fed’s Main Street Lending Program (MSLP) — a relief program intended to help small- and medium-sized businesses struggling to keep afloat through the ongoing economic crisis. In practice, the Fed’s flawed execution of the program drastically limited its reach and effectiveness — it did not aid firms that needed help the most, and was called a “failure” by a COC member for its lack of distributed assistance.
“This Congressional Oversight Committee report confirms what we already suspected: the Fed’s Main Street Lending Program failed to get businesses the support they need to stay afloat during this crisis,” said Kyle Herrig, president of Accountable.US. “We can’t fix the economic crisis without first fixing the public health crisis, and as Trump continues to bungle the nation’s COVID-19 response, small- and medium-sized businesses remain in dire straits. We need more information and much stronger oversight to ensure that federal aid reaches those who need it most.”
Key Points From The COC Report:
“The Main Street Lending Program has seen modest initial activity thus far. As of August 19, 2020, eligible lenders had issued loans totaling $496.8 million under the program. The Federal Reserve’s participation amount in these loans is $472 million—about 0.07% of the program’s $600 billion lending capacity. As of August 10, 2020, 522 lenders have registered with the program, although only 160 had publicized that they are accepting loan applications from new customers.”
No Help To Workers
The report suggested that the MSLP may be of no help to workers. “These workers face a predicament through no fault of their own and Congress established several programs, such as economic impact payments (i.e., stimulus checks), supplemental unemployment benefits, and paid leave as part of the federal response to the pandemic. Although those payments have since expired (though regular unemployment benefits still remain) and workers currently face unmet needs, the solution for these workers may not lie in the Main Street Lending Program. Incurring debt that must be repaid to support employment at a time when revenues are in decline may decrease companies’ long-term viability, and businesses may be unwilling to incur such debt to pay their workers.”
Despite Congress being on recess, the Commission acknowledges that “Main Street [Lending Program]-eligible entities would benefit from swift action to consider and implement any further improvements to the program.”
The report echoed findings from a hearing on the MSLP’s slow takeoff, including “the lengthy period the Federal Reserve and the Treasury took to launch the program, the longer time for processing loans, borrower awareness and understanding of the program, borrowers’ potential access to credit from other sources, and how the fact that Main Street Lending Program loans must be repaid may affect its utilization.”
“Additionally, the Commission heard testimony that 70% of businesses that inquire with banks about the Main Street Lending Program do not fully understand its terms, and that of these, many lose interest when they learn that MSLP loans are dissimilar to forgivable PPP loans.”
Business Are Unaware Of The Program’s Existence
“Despite the Federal Reserve’s outreach efforts for the MSLP, some businesses that could benefit from the program are unaware of the program’s existence or are confused by the program’s terms. In a survey of its members, the Association for Corporate Growth found that 22% of respondents, which were comprised of investors, executives, lenders, and advisers to hundreds of thousands of growing middle-market companies, were unaware of the Main Street Lending Program.”
“However, some Commissioners believe the current affiliation restrictions may be necessary to ensure that the Main Street Lending Program’s funds flow to businesses that are unable to otherwise secure capital with reasonable terms, and to ensure that large sponsors, such as private equity and venture capital funds, do not transfer loan proceeds out of the borrowing portfolio company at taxpayers’ expense.”
Read Accountable.US’ analysis of the MSLP’s failures here.
Accountable.US is a nonpartisan watchdog group that exposes corruption across all levels of government.
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