Federal Reserve Expands Emergency Retail Financing

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Federal Reserve Expands Emergency Retail Financing

By Thad Rueter - 04/30/2020
Local lending efforts are filling some retail gaps
Retailers have gained more access to federally-backed financing

An expanded federal lending program could help more retailers weather the economic woes brought upon by the COVID-19 pandemic.

The U.S. Federal Reserve said Thursday that its Main Street Lending program would not only work with larger businesses than was previously the case, but would offer new types of loans. The changes, in general, could funnel more capital to larger medium-sized businesses, according to the National Retail Federation (NRF).

The main change enables companies with up to 15,000 workers and no more than $5 billion in revenue from 2019 to apply for a loan through the program, with banks backing some of the financing depending on the loan type and amount. Previously, the limit stood at 10,000 employees and $2.5 billion. According to the NRF, that previous limit shut out larger mid-sized business from the $600 billion lending effort. The trade group earlier in April lobbied the Federal Reserve and the U.S. Treasury Department to raise those limits.

“Our members are suffering cumulative losses that amount to tens of billions of dollars each week, and many parts of the retail sector have seen revenues shrink by 90%-100% compared to the same period last year,” the trade group wrote in an April 16 letter to those two federal bodies. “Based on public data, nearly 200 non-investment grade borrowers that do not qualify for access to the (Primary Market Corporate Credit Facility) or other Federal Reserve programs do not currently meet the 10,000 employee/$2.5bn revenue criteria. As written, the Main Street Lending Program is out of reach for these businesses, despite their need.”

That’s not the only new Main Street Lending program changed announced by the Federal Reserve. It now offers loans for $10 million and more. The program’s minimum lending amount stands at $500,000. Loan repayment can take place over two or four years, with interest set at the LIBOR benchmark plus 3%.

It’s hardly news that money allocated via national programs to help keep businesses afloat during the pandemic has gone fast. But state and local governments and associated agencies are also trying to provide emergency financing, even as their coffers start to shrink thanks to reduce tax revenue and other factors.

For instance, news emerged Thursday that the Richmond Economic Development Authority in Virginia has run through roughly half of its $1 million Richmond Small Business Disaster Loan Program, according to Richmond BizSense. Some of the money already awarded has gone to local retail operations. “The Richmond program permits maximum loans of up to $20,000 or six months of employees’ wages, whichever is less, to help for-profit businesses cover wages. Payment of the one-time, zero-interest loans is deferred for six months,” the report said.

As time passes and the economic costs of the pandemic mount, you can be certain there will be increased need for such financing for retailers – and increased competition for such capital.