“Regrettably, I could neither borrow from the program nor find someone who has received a loan through it,” he added.
The lack of lender interest is one of multiple criticisms that have been levied at the program, which is aimed at businesses that are too large to qualify for the Paycheck Protection Program for smaller enterprises yet not big enough to tap the capital markets. The negative reviews are noteworthy because the Fed has been seen as the main source of stability for the financial markets throughout the crisis.
Vince Foster, executive chair of Main Street Capital Corp., which invests in smaller businesses, suggested that the commission should gather data on how many companies have sought loans and been rejected.
“I’m aware of probably a hundred,” he said. “And it’s not the banks’ fault.”
“We have a restaurant group in Florida, and the bank, who signed up for the program, said, ‘I can’t take any more restaurant exposure in my portfolio,’” Foster said. “Because they’re approaching it like a bank. … They’re not relaxing their underwriting standards. If you’re a restaurant group, you’re not getting a bank loan.”
Boston Fed President Eric Rosengren also addressed the commission, arguing that the program is working as intended and that more debt won’t necessarily help troubled companies or the smallest firms. He said the program could see much more interest if the economy worsens as banks see more demand for loans.
“This program is designed for a business that had a disruption in short-term credit, who was in good shape prior to the crisis and who, after the pandemic subsides, would be able to be a viable business as well,” Rosengren said. “There are businesses that fit [those] characteristics. We’re seeing some of those businesses coming to the facility.”
Under the program, which opened its doors earlier this month, the Fed will purchase 95 percent of a loan to a company with fewer than 15,000 employees or less than $ 5 billion in annual revenue. The minimum loan size is $ 250,000 for new credit, while expansions of existing loans can run as high as $ 300 million.
Gwen Mills, secretary-treasurer of Unite Here, which represents employees in the hard-hit hospitality industry, warned that the program is leaving workers behind — noting that 85 percent of its union members are unemployed. She criticized the fact that borrowers don’t have to formally pledge to use the money for payroll, despite congressional nudging in the CARES Act, that they do so.
She suggested that the lending restrictions should be loosened in other areas but strengthened as it relates to keeping workers employed.
“It is no longer acceptable for the Fed to just stand by and watch us fall off that cliff,” Mills said. “Read the room. Millions of American workers are right behind us and on the precipice.”
Congressional Oversight Commission members Bharat Ramamurti and Sen. Pat Toomey (R-Pa.) had different takeaways on the outlook of the program. Ramamurti, a former aide to Sen. Elizabeth Warren (D-Mass.), argued that the program was failing small and midsized businesses because “the Fed can only offer loans,” not provide grants.
“If the Main Street program can only offer loans, and it’s clear that most small and midsized firms aren’t looking for loans right now even though they’re already struggling badly, then how is this program going to stop widespread business closures and job losses?” he said.
Toomey, for his part, said it was too early to declare it a lost cause, saying there has been some pickup in usage of the program. He also pointed to the Association for Corporate Growth survey that showed 22 percent of members were unaware of the program.
“It’s way premature to come to the conclusion that this has all been a failure,” said Toomey, a member of the Senate Banking Committee. “There are definitely some improvements we ought to be looking at.”
Rep. French Hill (R-Ark.) , another member of the commission, agreed.
“I wouldn’t describe the program as a failure as one of my colleagues did; instead I stand by the previous complaints [that] it took way too long to stand up,” said Hill, a member of the House Financial Services Committee, in an interview. “But clearly there are impediments” to banks wanting to participate.