“Unfortunately, I could neither borrow from the program nor find someone who received a loan through it,” he added.
Lack of interest from lenders is one of the many criticisms leveled at the program, which targets businesses too large to qualify for the Small Business Paycheck Protection Program but not. large enough to tap the capital markets. The negative reviews are noteworthy as the Fed was seen as the main source of stability for financial markets throughout the crisis.
Vince Foster, executive chairman of Main Street Capital Corp., which invests in small businesses, suggested the commission collect data on the number of companies that have applied for loans and been turned down.
“I know probably a hundred,” he said. “And it’s not the banks’ fault.”
“We have a catering group in Florida, and the bank, which signed up for the program, said, ‘I can’t expose myself to restaurants in my wallet anymore,’” Foster said. “Because they approach it like a bank. … They’re not relaxing their underwriting standards. If you’re a catering group, you don’t get a bank loan.
Boston Fed Chairman Eric Rosengren also addressed the committee, saying the program is working as intended and that an increase in debt will not necessarily help struggling businesses or smaller businesses. He said the program could generate a lot more interest if the economy deteriorates as banks see more demand for loans.
“This program is designed for a business that had a short-term credit disruption, that was in good shape before the crisis, and that after the pandemic has ended may also be a viable business,” Rosengren said. “There are companies that match [those] characteristics. We see some of these companies coming to the facility.
Under the program, which opened earlier this month, the Fed will buy 95% of a loan from a company with fewer than 15,000 employees or less than $ 5 billion in annual revenue. The minimum loan amount is $ 250,000 for new credit, while existing loan expansions can reach $ 300 million.
Gwen Mills, secretary-treasurer of Unite Here, which represents workers in the hard-hit hospitality industry, warned the program is leaving workers behind – noting that 85 percent of its union members are unemployed. She criticized the fact that borrowers do not have to formally commit to using the money for payroll, despite congressional advice in the CARES Act, that they do.
She suggested that loan restrictions be relaxed in other areas, but tightened with regard to keeping workers employed.
“It is no longer acceptable for the Fed to sit idly by and watch us fall off this cliff,” Mills said. “Read the play. Millions of American workers are right behind us and on the precipice. “
Members of the Congressional Oversight Committee, Bharat Ramamurti and Senator Pat Toomey (R-Pa.) Had different opinions on the prospects of the program. Ramamurti, former aide to Senator Elizabeth Warren (D-Mass.), Argued that the program is failing small and medium-sized businesses because “the Fed can only offer loans”, not grants.
“If the Main Street program can only offer loans, and it is clear that most small and medium businesses are not looking for loans right now even if they are already in trouble, then how is this program doing? it stop widespread business closures and job losses? ”he said.
Toomey, for his part, said it was too early to declare this to be a lost cause, saying there had been some resumption of use of the program. He also pointed to the Association for Corporate Growth survey which showed 22 percent of members were unaware of the program.
“It is premature to conclude that this has all been a failure,” said Toomey, a member of the Senate Banking Committee. “There are definitely some improvements we should be looking at. “
Representative French Hill (R-Ark.), Another member of the committee, agreed.
“I wouldn’t call the program a failure like one of my colleagues did; instead, I maintain the previous complaints [that] it took way too long to get up, ”Hill, a member of the House Financial Services Committee, said in an interview. “But it is clear that there are obstacles” for banks wishing to participate.