Fed extends Main Street loan program as last-minute applications surge

FILE PHOTO: U.S. Senator Pat Toomey (R-PA) questions Treasury Secretary Steven Mnuchin during a hearing on “Examination of Loans to Businesses Critical to Maintaining National Security” before the Congressional Oversight Commission at Dirksen Senate Office Building, in Washington, U.S., December 10, 2020. Alex Wong/Pool via REUTERS

(Reuters) -The Federal Reserve on Tuesday said it had extended the end date for its Main Street Lending Program by eight days to process a rush of applications submitted since the Trump administration said it was terminating the emergency credit facility and several others set up by the U.S. central bank.

The program, targeted at small- and mid-sized businesses in need of credit to get through the recession triggered by the coronavirus pandemic, will remain open until Jan. 8 rather than closing on Dec. 31, as originally announced by U.S. Treasury Secretary Steven Mnuchin in November, the Fed said in a statement.

The extension, which the Fed said was approved by Mnuchin, will give the central bank the time needed to process and fund loans submitted to the lender portal on or before Dec. 14.

The program proved one of the most challenging for the Fed to get rolling among the clutch of emergency programs it set up to support the economy and credit markets earlier this year. It established the Fed as a creditor to everyday businesses as opposed to its traditional role as a backstop to financial markets and lender of last resort to banks and Wall Street firms.

In a bid to boost participation that was nearly non-existent in its early months, the Fed tweaked the program several times, dropping the minimum loan size to $100,000 and opening the door to nonprofit groups. The program – initially announced as a $600 billion facility – generated just $5 billion in loans in its first five months.

But since its termination was announced by Mnuchin, volumes have surged, Fed data showed. As of Dec. 23, there were $14.59 billion in loans in the facility, nearly three times the amount from four weeks earlier.

The rise in demand coincided with a slowdown in the economy after an initial rebound from late spring through the summer.

A surge in coronavirus cases across the country is once again weighing on consumer spending and forcing renewed business closures. A number of economists are now forecasting employment to have fallen in December after seven months of gains that had recouped a bit more than half of the roughly 22 million jobs lost in March and April.

Mnuchin’s decision to shutter the Fed’s programs has been assailed by Democrats, who see it as hindering the ability of President-elect Joe Biden to support the economic recovery. Mnuchin asserts he is following the letter of the law that authorized the programs last spring.

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