Letter to Jerome Powell, Chairman of the Federal Reserve - Reps. Kim and Norcross Lead Call on Federal Reserve to Expand Main Street Lending Program to Additional Small Businesses

Letter

Dear Chairman Powell,

We appreciate your ongoing efforts to help businesses gain timely access to affordable credit
during a period of economic turmoil caused by the COVID-19 pandemic. As members of the
New Jersey Congressional delegation, we write to express concerns about the potentially
restrictive qualifying criteria that the Federal Reserve has developed for the Main Street Lending
Program (MSLP).

It is our understanding that the MSLP was established to complement the Small Business
Administration's efforts by helping small and medium-sized businesses access emergency
liquidity. While we understand that the Federal Reserve has a responsibility to carefully evaluate
risk and maximize the likelihood that loans made with taxpayer dollars are repaid, we fear that
overly stringent qualifying requirements will be too exclusionary for many business and
industries and could therefore have a devastating impact on thousands of working families in our
districts.

As the Federal Reserve finalizes the program, we ask that you clarify the eligibility for certain
businesses like developers and operators of real estate assets that take a more active role in
managing properties than traditionally passive businesses. Currently, the program applies blanket
SBA guidance to determine eligible borrowers, which states that passive businesses that do not
actively use or occupy the assets acquired are ineligible, but does not factor in instances of
active management where owners are engaged in the construction, financial planning and
oversight of their businesses.

We also ask that you give full and fair consideration for asset-based borrowers who currently
face challenges with the loan size metrics laid out in the program's term sheets. Asset-based
borrowers in industries such as construction, hospitality, and manufacturing are in critical need
of capital that is currently unavailable or hard to access in traditional markets. The MSLP
currently limits the maximum loan size to a multiple of a borrower's earnings before interest,
taxes, depreciation, amortization (EBITDA). The Federal Reserve has already recognized that in
practice, the credit risk of asset-based borrowers is generally not evaluated based on EBITDA.

We are concerned that the current standards do not reflect the risk-assessment best practices for
some industry lenders and therefore ask that the Federal Reserve consider adjusting the metrics
of loan size to better reflect industry-specific underwriting practices.

As you consider these changes, we emphasize our support for accountability protections and
safeguards on any loans made through the MSLP to ensure that taxpayer dollars are used
responsibly. We believe that any changes made to the programs should be transparent and put
workers first. Lastly, we make it clear that the concerns in this letter are uniquely attributable to
the MSLF program and do not apply to other programs under Treasury or SBA including the 7(a)
program.

Thank you for your consideration. We look forward to working with you on these important
issues.

Sincerely,