The Main Street Lending Program, a $600 billion loan facility set up by the Federal Reserve with $75 billion from the Treasury Department, is supposed to be a life preserver for midsize companies too big for the Paycheck Protection Program and too small to issue debt in the Fed-backed securities markets.

But at the first Congressional Oversight Commission hearing Friday, expert after expert said the lending lifeline is falling far short for companies and workers drowning in a coronavirus-ravaged economy.

“I’m here this morning to provide testimony from the perspective of middle-market borrowers to help answer the question that you all are asking: who the Main Street Lending Program is helping,” said Tom Bohn, CEO of the Association for Corporate Growth, which represents 200,000 midsize companies. “Regrettably, I have no answer to offer you. We can neither borrow from the program nor find someone in our membership who has received a loan through it.”

“The Main Street Lending Program, while enacted to assist businesses like our portfolio companies weather the economic storm brought on by the pandemic, is not responsive to their needs as currently structured,” said Vince Foster, executive chairman of the Main Street Capital Corp.

They testified shortly after Eric Rosengren, president of the Federal Reserve Bank of Boston, which runs the Main Street Lending Program. Despite reports that the Treasury has held back the Fed from loosening the facility’s standards, Rosengren pointed no fingers Friday, defending the program as operating as planned to help the sliver of companies that were thrown for a loop by the pandemic but are otherwise healthy.

“This program is designed as a cash flow program, so it’s designed for a business that expects to be able to pay off the debt,” Rosengren said.

Friday’s hearing on the program was the first held by the Congressional Oversight Commission. The panel — Rep. French Hill, R-Ark.; Rep. Donna E. Shalala, D-Fla.; Sen. Patrick J. Toomey, R-Pa.; and Bharat Ramamurti, a former aide to Sen. Elizabeth Warren, D-Mass. — was set up in the $2 trillion economic relief package enacted in March to monitor the $500 billion given to set up Fed lending facilities and make targeted bailouts for the airline industry and defense contractors.

Little demand

The Main Street facility took three months to get up and running and has been little used relative to some of the other emergency lending programs created to help companies survive the pandemic. So far, only 509 banks have signed up to be Main Street program lenders, and 29 have made loans. Only 54 loans totaling $580.9 million have been issued to date. For comparison, the Paycheck Protection Program has pushed out more than 5.1 million loans worth $523.4 billion.

Rosengren said the program was still ramping up, noting that more loans, totaling $530 million, were in the pipeline. But that didn’t satisfy Ramamurti, who urged the Fed to loosen the terms to make the program more attractive to struggling businesses and banks.

“I think the issue is that the Fed is trying to solve a problem that doesn’t exist and it’s incapable of solving the problem that does exist. By law, the Fed can only support loans, and more loans are not the answer here for most companies,” Ramamurti said, urging Congress to act to provide direct support to midsize firms with strings on the money to ensure that workers also benefit.

The Main Street Lending Program relies on banks to issue mid-market companies five-year term loans with low interest rates. The Fed then effectively buys 95 percent of those loans from the bank. The way the terms work now, companies little hurt by the pandemic can get better loans from regular lenders.

Hill pressed Rosengren about companies that might have good collateral to lend against but don’t have the cash flow to qualify for the Main Street program — like commercial real estate companies or a firm that recently built a new factory for a novel product.

Rosengren didn’t endorse or oppose the idea, but he said an asset-based, rather than cash flow, lending program would require a separate facility, one with longer maturity than the Main Street’s five-year term.

Gwen Mills, secretary-treasurer of UNITE HERE, which represents hotel, casino and restaurant workers, opposed an asset-based facility, saying it would be a bailout for real estate investors that would do little to help laid-off employees.

“Lobbyists claim if the Fed doesn’t rescue [commercial mortgage-backed securities] borrowers, hotels will default and workers won’t have jobs to come back to, but that is not our experience, and this isn’t the first time hotel owners got themselves in trouble using these inflexible loans,” she said. “After the financial crisis, there were scores of defaults across the country, but defaults and foreclosures didn’t lead to closed hotels. Hotel workers, who were used to seeing absentee owners come and go, understand that jobs are driven by occupancy. And only ending the pandemic can fix that.”

Employment requirements

Mills urged the Fed to instead impose employment requirements on the Main Street loans, which Congress suggested but did not mandate in the March law. Mills noted that before that legislation, 90 percent of UNITE HERE’s members were laid off and, despite the federal economic relief package, 85 percent remain unemployed.

Ramamurti sharply questioned changes to the facility made in April that matched requests from the oil and gas industry, which Energy Secretary Dan Brouillette said he secured on their behalf. Rosengren maintained that the facility was designed as a broad-based program, but Ramamurti said bailing out insolvent oil and gas firms required further investigation.

“I urge the commission to further investigate this issue, including by requesting all communications on this topic, between the Fed and the Energy secretary, the Treasury secretary and any representative of the oil and gas industry,” he said.

Ramamurti went on to call the facility a failure, and he urged Congress, which is negotiating another rescue package, to take steps to save businesses with grants rather than more loans.

“And when it does, it needs to tie the assistance to meaningful enforceable protections for workers, and not just hand money to executives and trust them to take care of workers’ interests,” he said.

Not everyone on the panel fully agreed.

“It’s way premature to come to the conclusion that this is all a kind of failure,” Toomey said, adding that many changes should be made, like loosening affiliation rules to let larger franchisees participate.

In addition to the terms of another economic relief bill, congressional leadership still has not agreed on a fifth member to chair the oversight panel. Gen. Joseph Dunford Jr., former chairman of the Joint Chiefs of Staff, declined the position. Hill filled the role at the hearing.  

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