Fed to expand loans to bigger businesses
Main Street program to lend $600 billion
WASHINGTON — As applications pour in for the Small Business Administration’s loan program, a separate batch of loans is preparing to launch in the coming days — with revised eligibility requirements that could aid larger companies like natural gas producers in Western Pennsylvania.
The Federal Reserve is readying its $600 billion Main Street Lending Program after making changes last week to expand the scope of the new program by increasing the amount of eligible businesses and lowering the minimum loan size.
The Fed will allow companies employing up to 15,000 people or with up to $5 billion in annual revenue to be eligible for the central bank’s four-year, low-cost loans. Previously, the central bank had set the eligibility requirements at 10,000 employees and $2.5 billion in annual revenue.
This program is part of the economic rescue package created in March in response to the COVID-19 crisis.
The Fed also lowered the program’s minimum loan size to $500,000 from $1 million, after several banking groups said many businesses needed smaller loans. That loan size is still far above the $100,000 minimum demanded by the Independent Community Bankers of America.
Wider eligibility could open up the program for Western Pennsylvania businesses like natural gas producers, which had asked the Federal Reserve and U.S. Treasury Department to allow borrowers to use the funds to pay down existing debt. Letters came from organizations such as Range Resources, a Texas-based natural gas driller; the Builders Guild of Western Pennsylvania; and the Independent Petroleum Association of America.
The Pennsylvania Republican delegation, led by Rep. Guy Reschenthaler, R-Peters, also requested changes be made to tailor the program for natural gas producers.
One part of the Main Street loan program now allows borrowers to refinance existing debt, scrapping a previous restriction. In addition, the program allows borrowers to pay down existing debt if “the debt or interest payment is mandatory and due,” according to the Fed terms.
“I requested that the Main Street Lending program would help the Appalachian natural gas industry, and that way, your industry could benefit from these loans,” Mr. Reschenthaler said during a webcast Tuesday hosted by Cabot Oil and Gas, a Houston, Texas-based energy producer with major operations in Pennsylvania.
He said he was pleased with the changes made by the Fed, adding, “I will continue to advocate for the industry and make sure that, if we do have future phases of COVID-19 response, that this sector is included.”
Anne Bradbury, CEO of the American Exploration and Production Council, said on the webcast she appreciated Congress’ help for her group’s members, which include Cabot and EQT Corp., the Downtown-based natural gas driller.
“We are not seeking any special help from the government in the form of a bailout, but rather, in the short term, we need tools to manage through this crisis,” Ms. Bradbury said.
After the webcast, a spokesman with Cabot Oil and Gas said the company would not seek any federal loan.
Range Resources and EQT did not respond to requests for comment about the program.
Business groups from energy to manufacturing to retail praised the Fed’s changes as opening up loans for mid-sized businesses across the board.
“We are focused on ensuring our industry has the same access as other industries to economy-wide programs that Congress authorized to provide systemic liquidity
and promote employment during this period of economic decline,” said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs for the American Petroleum Institute.
“These changes will allow more businesses across the economy that were viable before this crisis, including retailers, manufacturers and some energy businesses, to access capital during these challenging times,” Mr. Macchiarola said.
Other groups were unhappy the government is allowing highly indebted companies to refinance their loans while receiving taxpayer aid.
“The Fed should not be in the business of bailing out companies that were in terminal decline and suffering largely from their own misadventures well before the coronavirus pandemic,” David Arkush, a managing director with Public Citizen, a progressive consumer rights advocacy group. “The fracking industry is notoriously over-leveraged, and fracking gas is not even profitable.”
Rep. Conor Lamb, D-Mt. Lebanon, said he is against companies borrowing money to pay off existing debt.
“These companies are asking for taxpayer funds to pay off old debts that had nothing to do with the coronavirus,” Mr. Lamb said. “Taxpayers didn’t take out these debts, and they continue to demand that we stay focused on the damage done by the virus itself, using every last dollar for things like paychecks, unemployment, mass testing and PPE.”
In a statement, the Fed said the changes allow the program to “offer more options to a wider set of eligible small and medium-size businesses.”
The Fed did not provide a specific timetable for when the Main Street program would get off the ground. Fed Chairman Jerome Powell told reporters last week it will announce a start date “soon.”
But unlike the Small Business Administration’s forgivable loan program, which is on its way to being depleted for the second time in about a month, Mr. Powell said its program had plenty of funding to meet demand.
“We won’t run out of money,” Mr. Powell said.