Billions Lent For Main Street SMBs – But Cash Flow Crunch Is Stubborn

SMB Cash Flow Crunch Despite Billions Lent

Billions of dollars in dry powder for Main Street SMB lending – and relatively few takers.

But the cash crunch continues.

To that end, the Main Street Lending Program – which, as noted in this space, is focused on companies that are reasonably healthy but are not able to tap traditional capital markets as they navigate the pandemic – has made loans that run into the millions of dollars.

That comes as the Federal Reserve has lowered its minimum loan threshold twice, to a recent $250,000, Bloomberg reported.

In fact, only one loan in the latest tranche came within sight of that minimum threshold, at $265,000.

All told, the Main Street Lending Program has extended $1.2 billion, out of a total lending capacity of $600 billion across three facilities.

The anemic uptake comes as banks hold 5 percent of the loans on their books and the Fed keeps the remaining 95 percent. It may be the case that banks want more proverbial skin in the game. Over the summer, lawmakers had urged that the minimum loan threshold be lowered to $250,000 to spur small business access, but that doesn’t seem to have moved the needle much.

“The fact that the companies themselves must have fewer than 15,000 employees and less than $5 billion in top line also makes one wonder just how ‘Main Street’ the program is, after all,” we wrote last month.

Beyond Main Street lending activities, the Paycheck Protection Program (PPP) may see a renaissance of sorts. On Tuesday (Sept. 8), Republicans announced a new stimulus bill at $500 billion, which would include $258 billion in PPP loans (the first legs of the program lent $525 billion since debuting in April).

That proposed lending salvo comes as a House Oversight Committee investigation found that, as reported by USA Today, roughly 10,000 loans totaling more than $1 billion went to companies that had already received more than one PPP loan (which is not allowed). Roughly 600 loans ($96 million) went to firms that were barred from working with the government due to disbarment or suspensions.

One thing’s for certain: The cash crunch continues. PYMNTS reported that the PPP and other economic stimulus efforts may not be enough to boost SMBs’ confidence about making it through the pandemic. The Main Street On Lockdown: The COVID-19 Cash Chasm found that retail firms were relatively less certain they would survive the pandemic. In April, 28.3 of business owners in this vertical said they were sure their business would not survive the pandemic, up from 17.1 percent in March. By and large, the firms we surveyed said that even with government aid in hand, survival might not be assured. Getting government funds would give companies enough money to stay open an average of 97 days, but they expected the pandemic to last 150 days.

SMB survival may not be helped much by the fact that stimulus fund recipients – individuals and families – have not been rushing to spend those checks. A recent report by the National Bureau of Economic Research (NBER) found that 33 percent of the roughly 12,000 individuals queried said they saved the payments, while 52 percent paid down debt. Per the report, only 15 percent spent the funds, and then only a portion of it, at about 40 percent.