Nearly half of all loans made for COVID-19 era programs repaid – but losses mount on remaining

Nearly half of the loans made through emergency lending programs of the Federal Reserve in response to the coronavirus crisis in 2020 have been repaid, according to a report issued Thursday by the congressional watchdog.

The report – mandated by the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and issued by the Government Accountability Office (GAO), said loans made by the 13 emergency lending programs, including the Main Street Lending Program (MSLP), as of Aug. 31 were more than 99% current. The MSLP, the report states, made 1,830 loans to small- and mid-sized businesses and nonprofits.

Despite those results, the GAO report stated that losses of outstanding MSLP loans had increased. Indeed, the report notes, about 8% of outstanding loans (138 total) had losses that totaled about $969 million. A year ago, the losses were about $781 million, the report notes.

There are still 847 loans outstanding (46% of all loans made). The program has collected about $1.89 billion in interest payments, the GAO report stated.

The report attributes the increase in losses (and delinquencies among smaller businesses and construction firms) partly to higher interest payments and the 15% of each loan’s principal that came due for borrowers in the second half of 2023.

“Interest rates higher than those at loan origination have increased borrowers’ payments, potentially creating financial strain for businesses,” the report states. “Another 15% of each loan’s principal came due during 2024, and a balloon payment of the remaining 70% will come due beginning mid-2025, potentially further affecting loan performance.”

The report notes that as of Aug. 31, four of the Federal Reserve’s 13 lending facilities, all part of the MSLP, continued to hold significant outstanding assets and loans.

“These facilities had approximately $4.7 billion in outstanding assets and loans, which will not mature until July 2025 or later,” the report stated. “About $10.4 billion in collateral was pledged to secure the loans. The four facilities were among the nine that received funds appropriated through the CARES Act (section 4003). The Federal Reserve is required to monitor and report on the status of the facilities until they no longer hold outstanding assets or loans.”

Federal Reserve Lending Programs: Nearly Half of Main Street Program Loans Are Fully Repaid, but Losses Have Increased