Michael Haith, owner and CEO of a Denver-based Teriyaki Madness restaurant chain, is in an unusual position for people like him: he is making money from the delivery and withdrawal of food and wants to lend funds so he can expand.
So far, a Federal Reserve loan program created specifically for small and medium-sized businesses like his has not helped much. He cannot find a bank that is participating in the program and does not have many details about how it works. For example, he is not sure how much he could borrow.
"We are trying to find this out and trying to find a bank that is working with the government on this," said Haith. "The orientation is quite complicated and the banks seem a little cautious."
Haith's experience underscores the banks' surprising lack of interest in the Fed's Main Street Lending program, as well as the challenges that potential borrowers are having to access the program. Fed officials say more than 200 banks have signed up to participate since the program began two weeks ago, but that is a small slice of the country's nearly 5,000 creditors. None have yet made loans.
The slow start contrasts sharply with the backlash from the Treasury Department's small business loan efforts, known as the Payment Protection Program. This facility, launched in early April, elicited a frantic response from millions of desperate small businesses seeking a loan. The first $ 350 billion in PPP financing ended in just two weeks before being replenished. Congress agreed to forgive the loans if they were spent mainly on paying workers.
The Fed was criticized by a congressional oversight body for taking steps quickly to facilitate the flow of credit to large corporations, but doing little for smaller companies. This month's Fed started its first purchases of corporate bonds issued by companies like AT&T, Microsoft and Pfizer.
The delay in funding for Main Street may arise during a hearing on Tuesday before a House committee on which Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin are expected to testify.
Powell said in prepared statements released Monday that the PPP apparently met the immediate credit needs of many small businesses.
"In the coming months, Main Street loans can be a valuable resource for companies that were in good financial shape before the pandemic," said Powell.
The Fed's loan program on Main Street is the central bank's first attempt since the Great Depression to go beyond typical financing for large banks and Wall Street companies and instead lend to companies. Its aim is to help companies survive the pandemic by providing low-cost, five-year loans with no interest payments in the first year or principal payments in the first two years. The banks will make the loans and the Fed will buy 95% of the value, freeing the banks to make more loans.
Lauren Anderson, senior vice president of the Bank Policy Institute, a lobbying group for major banks like Bank of America and JPMorgan, said some of the group's members joined, mainly in preparation for the economy's worsening at the end of the year. year and more troubled. companies need help. So far, businesses are not demanding loans.
"There is no huge demand from borrowers," she said. "I don't think we're going to see a massive rush for banks and a huge amount of loans being written right now."
Eric Rosengren, president of the Boston Fed, said in an interview that the PPP attracted more interest because it essentially provided money, not loans.
"So it's not surprising that a grant program is more popular than a loan program," he said. "Everyone wants a concession."
The Main Street program is also more complicated than PPP, said Rosengren, "because bank loans are complicated financial instruments", tailored to the needs of a specific company.
Companies with up to 15,000 employees or $ 5 billion in revenue are eligible for Main Street. Loans can range from a minimum of $ 250,000 to a maximum of $ 300 million. The Fed said it would buy up to $ 600 billion in loans from banks' Main Street. The Treasury provided $ 75 billion in taxpayer funds to absorb any losses.
Rosengren said the program aims to help companies that were successful before the pandemic and that may be successful again as the economy recovers. A deeply troubled borrower with no money and no likelihood of recovery will not qualify for a loan, he said.
The program may target a very limited group, analysts say. Many companies with a clear path to survival are likely to be able to successfully lend from banks anyway.
Two former Fed economists, Nellie Liang and William English, suggested in an article for the Brookings Institution that, to attract more interest, the Fed should extend the term of the loan beyond five years, offer a lower interest rate for companies with more credit. and paying higher fees to banks as an incentive for them to offer loans. Main Street loans currently have a rate slightly above 3%.
Liang said in an interview that many struggling small businesses are unlikely to want more debt. By extending the terms of the loans to seven or 10 years and offering some borrowers a lower rate, the loans would assume more characteristics of a grant or capital investment, said Liang.
Still, this may not be enough. "Even with the recommended changes, the program may have limited demand, as many companies need capital, not more credit," wrote English and Liang.
Haith, however, said the interest rate on a Main Street loan is much lower than he would normally expect to pay, even in a healthy economy.
But the loan would also work for him, because his business is healthy and he is really trying to expand. He is finding the owners much more flexible and many empty restaurant properties available. But there are probably not many others in the same boat, he acknowledged.
"I don't know many offensive companies at the moment," he said.