Fed checks in with senior loan officers on experiences with Main Street Lending Facility

Respondents to a September survey regarding banks’ experiences with the Main Street Lending Program (MSLP), created as part of the Federal Reserve’s response to the COVID-19 pandemic, said they expected to see a rise in commercial and industrial (C&I) loan inquiries over the next three months from “MSLP-sized” borrowers, but just a modest share of respondents said they expected a rise during that period in their banks’ willingness to extend such loans, according to a survey report Tuesday.

The September survey was a supplemental survey of banks’ senior loan officer opinions for the Fed to gain understanding of domestically chartered banks’ experiences with the program. The MSLP, which operates through five facilities to purchase participations in loans by eligible lenders, was launched this spring to support lending to small and medium-sized, for-profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

The survey posed a set of questions focused on four areas: C&I loan inquiries and banks’ participation in the MSLP since mid-June, when lender registration started; banks’ outlook regarding their participation in the program; factors that may have shaped banks’ willingness to participate; and characteristics of borrowers inquiring and receiving MSLP loans.

Again, respondents on the outlook question showed expectations of more C&I loan inquiries over the next three months but a small portion of banks expected to be more willing to extend such loans. Also, as reported by the Fed:

  • On balance, inquiries for C&I loans from borrowers of an eligible size for the MSLP (or “MSLP-sized borrowers”) were basically unchanged since mid-June, whereas inquiries decreased from Paycheck Protection Program (PPP)-sized borrowers and borrowers too large to be eligible for the MSLP. The majority of respondents reported that they were registered for the MSLP, with some banks reporting that they were already underwriting and submitting MSLP loans, and others reporting that they were preparing to make their first MSLP loans in the coming weeks.
  • Regarding factors that may have shaped banks’ participation in the MSLP, the survey inquired with MSLP-registered banks about their reasons for not approving MSLP loans and with nonregistered banks about their reasons for not registering. Registered banks often cited concerns about borrowers’ financial condition before and during the COVID-19 crisis, as well as overly restrictive MSLP loan terms for borrowers as reasons for not approving MSLP loans. Nonregistered banks mentioned their ability to provide credit to eligible borrowers without the MSLP, as well as unattractive key MSLP loan terms for lenders as reasons for not registering.
  • On borrower characteristics, the survey asked banks about MSLP-sized borrowers inquiring about C&I loans and about borrowers approved for MSLP loans. Inquiring borrowers reportedly suffered significant reductions in revenue or employment due to COVID-19, were often eligible for PPP loans, and had access to alternative bank products other than C&I loans or to alternative sources of funds other than bilateral bank loans. In contrast, approved borrowers were reportedly even more likely to be affected by the pandemic than inquiring borrowers, but less likely to have access to alternative bank products or sources of funds. In addition, approved MSLP borrowers were less likely to be new clients than inquiring borrowers.

The five facilities in the MSLP include the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), the Main Street Expanded Loan Facility (MSELF), the Nonprofit Organization New Loan Facility (NONLF), and the Nonprofit Organization Expanded Loan Facility (NOELF).

Loans issued under the MSLP, the Fed notes, feature a five-year maturity, deferral of principal payments for two years, and deferral of interest payments for one year. Eliglble lenders may originate new loans or increase the size of their existing loans made to eligible borrowers.

September 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices