The Federal Reserve's relief plan during the pandemic has now become a burden for businesses, with signs of a wave of loan defaults emerging

The Federal Reserve launched the Main Street Lending Program during the COVID-19 pandemic to help small and medium-sized enterprises (SMEs) get through difficulties. However, media reports indicate that the program has had the opposite effect on some businesses, burdening them with high interest rates and substantial repayments, leading some companies to lay off employees while struggling to survive. The Main Street Lending Program was designed by the Federal Reserve to assist those businesses that were too large to qualify for forgivable Paycheck Protection Program loans but too small to access the U.S. capital markets directly for financing. This is the first time since the Great Depression of 1929 that the Federal Reserve has systematically supported U.S. businesses in this manner, with a total of 1,830 floating-rate loans issued, ranging from $100,000 to $300 million. According to Bloomberg News, although most of the $17.5 billion in loans has been repaid, as of October 31 this year, $1.23 billion in interest and principal remains in default. The government regulatory agency overseeing the program expects that borrowing companies still face two major challenges, including massive one-time repayments of up to 70% due next year and high interest rates, which will significantly increase the default rate. As a result, the Main Street Lending Program has become the only emergency loan program of the Federal Reserve to experience actual credit losses. However, the Federal Reserve still expects that the program will fully recover its costs over its lifetime, with some losses offset by interest payments and the remainder absorbed by up to $75 billion in Treasury guarantees. Rate Hikes Overwhelm Businesses Under the program, no interest or principal payments are required in the first year of the loan; however, these bills are now snowballing. The Federal Reserve initially designed the loan interest rate as a floating rate; however, this feature became a heavy blow to borrowers when the Federal Reserve rapidly raised rates two years later to curb inflation. Justin Paget, a lawyer and partner at Hunton Andrews Kurth LLP, stated that these excessive interest payments hinder businesses' ability to reinvest in themselves: "Businesses are facing a double whammy. Many companies originally believed that cash flow and profitability would significantly recover after the pandemic. For many businesses, these expectations have not materialized." The Federal Reserve has also allowed some businesses to extend the loan term, but not beyond 2026. Although the program's loans do not have specific employment requirements like the Paycheck Protection Program, the Federal Reserve still requires businesses to make "commercially reasonable" efforts to retain employees during the loan repayment period. Analysts believe that the program is particularly meaningful for businesses severely affected by the pandemic, such as the service industry, which accounts for the majority of loans, including small cruise companies, gyms, and entertainment venues. Nevertheless, the loan utilization rate remains low, with a total of $17.5 billion in loans accounting for only 3% of the program's $600 billion cap Therefore, some people believe that the "Normal Business Loan Program" should have been set up as a similar subsidy program like the "Paycheck Protection Program," rather than a loan program that must be repaid. Special Inspector General for Pandemic Recovery Brian Miller expects more companies to default next year, stating, "Defaults are skyrocketing and will continue to rise." Miller indicated that some of these defaults involve borrowers who never intended to use the funds for their businesses. Thus, defaults can also serve as a warning signal for law enforcement agencies to detect and punish fraudulent activities, which have permeated various pandemic-related programs. According to a spokesperson for the Office of the Special Inspector General for Pandemic Recovery (SIGPR), over 70% of the loans investigated under the "Normal Business Loan Program" involve defaults