The Main Street Lending Program: Who Borrowed and How Have They Benefited? 
Shortly after the onset of the COVID-19 pandemic, the Federal Reserve established the Main Street Lending Program (MSLP). The program was designed to help midsize (250 to slightly more than 500 employees) and small businesses survive the economic disruptions caused by the pandemic and associated public health measures. Using the Dun & Bradstreet database, this study compares firms that borrowed from the Main Street Lending Program with their peers to understand which characteristics and circumstances made it more likely for firms to seek MSLP credit and how the program benefited them afterward. The findings help evaluate the extent to which the MSLP reached the subset of businesses it was designed to target and its efficacy in providing liquidity to alleviate financial strains on firms.
Key Findings
- Midsize firms exhibited the highest probability of becoming Main Street Lending Program (MSLP) borrowers.
- Among eligible firms, those with fewer than 10 employees were the least likely to borrow from the MSLP by a notable margin.
- Being an early recipient of a 2020 Paycheck Protection Program (PPP) loan increased a firm’s likelihood of borrowing from the MSLP, indicating the importance of preexisting banking relationships. The finding also suggests that these firms needed more funding than was provided by the PPP.
- Firms with moderately low risk just before the COVID-19 outbreak were more likely to borrow compared with riskier firms. The safest firms were the least likely to borrow.
- Having experienced a larger improvement in risk scores over the year before the pandemic but a greater deterioration in risk scores after its onset was associated with a stronger propensity to borrow from the MSLP.
- Better economic conditions in a firm’s county and a larger presence of community banks in that county reduced the likelihood of borrowing from the MSLP. Operating in an essential industry also reduced the likelihood that a firm would borrow from the program.
- A longer delay in PPP lending in a firm’s county increased the likelihood that the firm would become an MSLP borrower.
- The financial health of recipient firms improved progressively and significantly over the year following loan receipt.
Implications
This paper’s findings indicate that the MSLP largely achieved the objective of shoring up the liquidity position of firms that had promising prospects but were hit hard by the pandemic. To the extent that firms in a better liquidity position can more readily take advantage of growth opportunities, these borrowers should be able to expand operations more easily as the economy normalizes. The results support the argument that, despite the various challenges, a program like the MSLP following major disruptions to the economy can confer substantial real economic benefits by providing bridge funding to firms with good prospects but short-term liquidity shortages.
Abstract
The Main Street Lending Program (MSLP) was established by the Federal Reserve to supply credit to small and, especially, midsize businesses so they could weather COVID-19–induced disruptions. This study uses Dun & Bradstreet (D&B) data on the financial condition and overall viability of firms to examine the characteristics of MSLP borrowers and their performance after receiving a loan relative to the performance of their peers. Estimates show that, even when differences in firms' industries and geographic regions are taken into account, a firm was more likely to borrow from the MSLP if it was larger, more active, had a good but not excellent risk score, was hit harder by the pandemic, had received a Paycheck Protection Program (PPP) loan early but was located in a county with a longer delay in PPP lending, operated in a nonessential industry, or was located in a county with fewer community banks. A nontrivial fraction of MSLP borrowers also received second-draw PPP loans in 2021, indicating that they were, in fact, in need of funding. Receiving an MSLP loan improved firms' financial condition progressively and significantly on average, even though it did not lead to significant increases in employment over the year following loan receipt.