Few takers expected for the Fed's new $600 billion business loan program

Billions of dollars in low-interest loans for companies hurt by the coronavirus are supposed to start flowing this week, but for the first time this year executives are not lining up to take advantage of a government-funded relief program.

Bankers and business groups report a surprising lack of interest in the Federal Reserve's Main Street Lending Program, which is supposed to pump $600 billion into small and medium-size companies that were in sound financial condition before the coronavirus-induced recession.

Though companies still need help, executives and small-business consultants said the rules of the Main Street program are so onerous that thousands of firms either won't qualify or can't afford to take on the risks that come with the short-term loans. Unlike the popular Payroll Protection Program (PPP), Main Street loans are not forgivable.

Some bankers and economists said the Main Street program seems designed to help large companies that don't really need assistance.

"I'm upset that they're calling this the Main Street Lending Program," said Diane Paterson, associate director of the Small Business Development Center at the University of St. Thomas in St. Paul. "This is not going to save jobs on Main Street. This is a big business program."

Even big companies have been slow to embrace the program. Though companies can qualify for assistance if they have fewer than 15,000 employees or $5 billion in annual revenue, just a handful of publicly held companies have disclosed their intent to apply for a Main Street loan, according to a Star Tribune review of recent filings with the Securities and Exchange Commission.

SeaWorld Entertainment, which shut down all 12 of its theme parks in March because of COVID-19 fears, said in an April report it is "actively engaged" in seeking a Main Street loan to help it deal with monthly operating losses of $25 million. Also expressing interest in the program are a national coffee roaster that has been hurt by a decline in restaurant sales and a Utah bedding firm that was hit with a 42% sales decline this spring.

So far, no public companies in Minnesota have announced an intent to apply for a Main Street loan. Polaris Inc., which suspended production at some of its plants this spring because of COVID-19, said it has not "looked extensively" at the Main Street program because it has other financial options.

Bankers, who were overwhelmed by the number of applications from companies seeking help through the PPP, said a replay is highly unlikely.

"We have been heavily reaching out to our customers to determine the level of interest, and I would dare say that the interest has been very little so far," said Mitch Bleske, chief financial officer of Bremer Bank, which has processed about $1.5 billion in PPP loans.

There are two main problems with the Main Street program, according to executives and business consultants. First, companies must borrow at least $500,000, which is far more than most small businesses need to survive. Second, firms must repay the money within four years, which could stretch some budgets to the breaking point.

"If you have to borrow $500,000, you are probably eliminating most of the restaurant industry," said Brian Marks, an economics professor at the University of New Haven in Connecticut who has studied the Main Street program. "The name of the program is a misnomer."

Tim Milner thought the Main Street program might help his industrial painting business in Farmington. Milner, president of JIT Powder Coating Co., hasn't been shy about seeking government help. With business down 18%, Milner was eager to avoid laying off any of his 70 workers, so he applied for a disaster loan through the U.S. Small Business Administration. When that failed to come through, he obtained $550,000 through the PPP.

However, Milner now predicts it will take more than a year for his business to fully recover. To avoid reducing hours for his workers later this year, Milner said he probably needs another $300,000 in government help. He thought the Main Street program might be the answer.

Unfortunately, Milner said, the math doesn't work. If his company borrowed the minimum of $500,000, it would owe another $12,000 a month once the payments came due in a year. Milner said his company, which generated about $7 million in sales last year, would need to boost business by 20% to cover the note.

"I said 'No thanks,' " Milner said. "Even with a low interest rate, you aren't going to take on this debt because you'd have to have an immediate spike in business to pay it off. And nobody is looking into their crystal ball and seeing that yet."

Like other business owners in Minnesota, Milner hopes Congress creates one more round of PPP funding so that companies that have already utilized the program can go back for a second helping. "I think you're going to see another big round of layoffs if the government doesn't step in and extend the PPP program," Milner said.

Another solution would be to make the Main Street loans forgivable, an option that was pushed by some business groups and Sen. Mark Warner, D-Va., one of the senators who persuaded the Federal Reserve to create its first direct-lending program since the Great Depression. But Fed Chairman Jerome Powell told Warner that the Fed isn't empowered to convert loans into grants, according to a recent story in the Wall Street Journal.

The Fed declined to make an official available to address concerns about the program with the Star Tribune.

At a recent meeting of the Senate Banking Committee, Powell and Treasury Secretary Steven Mnuchin took credit for reducing the minimum loan size from $1 million, as it was first proposed, to $500,000. They said the move was aimed at making sure there are no funding gaps in federal programs aimed at helping business owners through the crisis.

Still, Powell agreed the program may need further revisions.

"If the uptake is not where we would hope, then we are prepared to go after that and try to find ways to address the needs of this area of the economy," Powell told the committee.

Banking groups have suggested reducing the minimum loan size to as little as $50,000 and extending the length of the loan to six years.

"The four-year term is probably the biggest hurdle for this program," said Holly Wade, director of research and policy analysis at the National Federation of Independent Business, a trade group. "The Main Street Lending Program may be a great option for many businesses, but four years is not especially long when we don't know what this looks like going forward."

In a recent survey of NFIB members who had received either a PPP loan or had applied for a disaster loan through the U.S. Small Business Administration, 26% said they expect to need more government assistance in the next 12 months. Wade said more than half of the respondents don't know yet.

Despite widespread criticism of the Main Street program, some companies are eager to get the process started. Their only complaint is how slow the Fed has been in launching the program, which was approved by Congress in March.

Bloomington attorney Dennis Monroe said he is working with two restaurant companies in the Midwest that have their paperwork ready. Both companies are seeking at least $5 million.

"This is a good program, from what I can tell," said Monroe, former CEO of Parasole Restaurant Holdings, one of the premier restaurant companies in Minnesota. "It's really aimed at sizable businesses. To make it work, you have to have profitability."

Jeffrey Meitrodt • 612-673-4132