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Home»Business»Feds’ Lifeline To Small Businesses Might Be ‘Death Knell’ For ‘Some’ Companies
Business

Feds’ Lifeline To Small Businesses Might Be ‘Death Knell’ For ‘Some’ Companies

November 26, 2024No Comments5 Mins Read
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Feds’ Lifeline To Small Businesses Might Be ‘Death Knell’ For ‘Some’ Companies
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A Federal Reserve program aimed at bolstering small and medium-sized businesses may now be financially burdening some of them, experts told the Daily Caller News Foundation.

The Fed introduced the Main Street Lending Program (MSLP) in 2020, which provided loans to small and mid-sized businesses that were impacted by the COVID-19 pandemic. Some business owners are having difficulty affording to pay off the loans amid rising interest rates and a surge in inflation since 2020, experts told the DCNF.

The total value of the program’s loans issued was approximately $17.5 billion, according to a March report from the Office of the Special Inspector General for Pandemic Recovery. While many of the program’s loans have been repaid, losses have continued, with MSLP’s

“It was intended to help companies, and it was a lifeline at a time when they were desperate for liquidity,” Ken Mann, managing director at SC&H Capital, told the DCNF. “But, they’ve now hit a point where it’s kind of a death knell for some businesses.”

Unlike some other federal lending programs that offered loan forgiveness, the MSLP loans required repayment, according to Hunton Andrews Kurth LLP, a global law firm. Some borrowers are struggling to make scheduled principal payments, while others may have difficulty making the final principal payments without needing to refinance, according to the law firm.

“The other interesting thing about this loan program is the law that put it into place did not allow for the usual concessions that a lender could make when somebody is struggling to make payments,” Mann told the DCNF. “There was no way to reduce it or modify it. Although, over the last year the Fed has been granting extensions on the payments, and I have been a part of several sales where the Fed got paid less than 100% and did consent to the sale. Even today, because the program expires in 2026, even if you do get an extension, it can’t go past Dec. 31 of 2026.”

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(Photo by Brooks Kraft/ Getty Images)

The U.S. economy was drastically impacted by the COVID-19 pandemic, with an uptick in business closures and a spike in unemployment rates. In June 2021, 6.2 million people did not work at all or worked fewer hours due to their employer closing or lost business due to the pandemic, down from 49.8 million in May 2020, according to the Bureau of Labor Statistics.

“You’ve got businesses that just quite frankly did not plan for it, who are now in this position of having a hardship of paying it back,” Richard Stern, director of the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation, told the DCNF.

Many small and mid-sized businesses in the U.S. have been struggling with high prices under the Biden-Harris administration. The small business uncertainty index, which measures the outlook of how uncertain small business owners are about the future of the economy, rose seven points to 110 in October, the highest reading ever recorded, according to the National Federation of Independent Business. Small businesses employ roughly 46% of American workers, or about 59 million people, according to the Office of Advocacy. (RELATED: ‘Fared Terribly’: Price Of Middle Class Staples Has Exploded Under Biden-Harris Admin)

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“While the federal deficit creates pressure to raise interest rates, the Fed had been printing money to reduce this pressure, but that of course turned into the inflation that we have seen over the past four years,” Stern told the DCNF. “The estimates four years ago of what interest rates would look like now did not have interest rates estimated to be anywhere near as high as they are now. The businesses planned for much lower interest across the board, and of course we are seeing much higher interest rates.”

“Companies have a lot less money to play with than they thought,” Stern added.

The Paycheck Protection Program (PPP) was introduced in 2020, and was aimed at providing small businesses with resources to stay afloat during the pandemic. There have been various reports of the PPP being targeted by fraud, including the Pandemic Response Accountability Committee reporting thousands of questionable Social Security Numbers allegedly used to obtain $5.4 billion in COVID-19 relief from the PPP and the COVID-19 Economic Injury Disaster Loan program. Some affluent celebrities reportedly took advantage of the PPP loans during the pandemic despite their wealth.

The PPP provided small businesses with roughly $800 billion in low-interest loans during the pandemic, according to the American Economic Association. The U.S. Small Business Administration inspector general estimates $136 billion in fraud from the EIDL and $64 billion in fraud from the PPP, according to a press release from the FBI Springfield.

Prices have risen since President Joe Biden took office in January 2021, with inflation peaking at about 9.1% in June 2022. The economy was a top concern among voters in the 2024 presidential election cycle.

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The Federal Reserve Board did not respond to a request for comment from the DCNF.

All content created by the Daily Caller News Foundation, an independent and nonpartisan newswire service, is available without charge to any legitimate news publisher that can provide a large audience. All republished articles must include our logo, our reporter’s byline and their DCNF affiliation. For any questions about our guidelines or partnering with us, please contact licensing@dailycallernewsfoundation.org.

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