As millions of business owners grapple with an uncertain future, most avenues available for relief have closed to them. The popular Paycheck Protection Program ended months ago, and partisan bickering in Congress is hindering its revival. State-level business assistance programs quickly depleted their funds, and further help is unlikely as states face their own revenue challenges. 

This situation has made the tightfistedness of the Federal Reserve’s Main Street Lending Program (MSLP) all the more frustrating. The Fed describes the program as a way to aid small and midsize businesses that were in sound financial condition before the pandemic, offering affordable five-year loans with deferred principal and interest. 

Lenders can draw on a pool of $600 billion. As of early October, four months into the program, the Fed has underwritten loans of about $2.5 billion - less than half of 1 percent of what’s available. 

The program got off to a rocky start, with a delay in launch and some initial reluctance by banks to sign on as eligible lenders. Even as the number of participating lenders has grown, including more than a dozen in Connecticut, these banks have generally reported minimal interest in the program (an outlier, the City National Bank of Florida, has embraced the MSLP and issued nearly 40 percent of the program’s loans to borrowers across the nation). 

One shortcoming of the MSLP is the program’s limited scope. It was originally envisioned to help midsize and large businesses that could not qualify for PPP funding, and applicants must take out a loan of at least $250,000. Most approved loans have been for $1 million or more. Few small businesses are able or willing to take on such large loans. 

The dismal showing of the MSLP has resulted in proposals to modify the program to better serve small businesses, including one suggestion to convert it into something similar to the PPP and provide direct aid to companies. Federal Reserve Chairman Jerome Powell has rejected such calls, saying the program is not well-suited for smaller loans, that underwriting thousands of small loans may be beyond the Fed’s capabilities, and that companies might have better luck applying for standard business loans. However, banks have been approving fewer than one in five small business loan applications throughout the pandemic. 

Even when businesses do pursue a loan through the MSLP, they often report roadblocks along the way. Lenders may be unwilling to take on new borrowers or consider companies with significant debt. While the Fed assumes 95 percent of the value of each loan, some banks may still consider the 5 percent they shoulder as too much risk for too little reward. 

The Fed has done little to address the shortcomings of the MSLP. Its last guidance, issued in September, chided banks to consider a borrower’s pre-pandemic condition and prospects for success rather than using their standard protocols; soon after, the Fed released a survey showing that lenders often weren’t following this advice. Before Congress, Powell offered the questionable assurance that the MSLP funds will be there to help if the economy worsens — a possibility that becomes all the more likely if businesses cannot access the money meant to help them. 

A more risk-tolerant approach could be crucial in keeping midsize firms in good financial shape. Banks must also show more willingness to make businesses aware of the program and accept some risk in order to support their local economies. 

Dirk Langeveld is the content editor at InnovatorsLINK.com, a small business portal that connects owners with resources for starting and managing a company. The site was developed through a grant from Thames River Innovation Place funded by CTNext. It is currently focused on the “Blue Economy” in southeastern Connecticut.