(Reuters) – The Federal Reserve said on Tuesday it had extended the end date of its Main Street loan program by eight days to deal with a rush of applications submitted since the Trump administration announced it was ending the emergency credit facility and several others from the US central bank.
The program, aimed at small and medium-sized businesses needing credit to weather the recession triggered by the coronavirus pandemic, will remain open until January 8 instead of closing on December 31, as originally announced by US Treasury Secretary Steven. Mnuchin in November, the Fed said in a statement.
The extension, which the Fed says was approved by Mnuchin, will give the central bank time to process and fund loans submitted to the lender portal by December 14.
The program has proven to be one of the most difficult for the Fed to launch out of all the emergency programs it put in place to support the economy and credit markets earlier this year. It established the Fed as the creditor of current businesses, as opposed to its traditional role as a financial market safety net and lender of last resort to banks and Wall Street corporations.
In an effort to increase participation which was almost non-existent in its first few months, the Fed changed the program several times, lowering the minimum loan amount to $ 100,000 and opening the door for nonprofit groups. The program – initially advertised 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 increased, according to Fed data. As of December 23, there were $ 14.59 billion in loans in the facility, nearly three times the amount four weeks earlier.
The rise in demand coincided with a slowdown in the economy after an initial rebound from late spring through summer.
An increase in coronavirus cases across the country is once again weighing down consumer spending and forcing further business closures. A number of economists are now forecasting a drop in employment in December after seven months of gains that recouped just over half of the roughly 22 million jobs lost in March and April.
Mnuchin’s decision to shut down Fed programs has come under attack from Democrats, who see it as a hindrance to President-elect Joe Biden’s ability to support economic recovery. Mnuchin says he is following the letter of the law that authorized the programs last spring.
Reporting by Dan Burns Editing by Paul Simao