Board of Governors of the Federal Reserve System

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Table 1 | Chart data
Table 1 (PDF) | Charts (PDF)

September 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices

The Federal Reserve conducted a supplementary Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) to understand the experiences of domestically chartered banks with the Main Street Lending Program (MSLP).¹ The survey consisted of a set of questions that focused on four areas: commercial and industrial (C&I) loan inquiries and banks’ participation in the MSLP since mid-June, when lender registration started; banks’ outlook regarding their participation in the program; factors that may have shaped banks’ willingness to participate; and characteristics of borrowers inquiring and receiving MSLP loans.²

Regarding C&I loan inquiries and banks’ participation in the MSLP, respondents indicated that, on balance, inquiries for C&I loans from borrowers of an eligible size for the MSLP (or “MSLP-sized borrowers”) were basically unchanged since mid-June, whereas inquiries decreased from Paycheck Protection Program (PPP)-sized borrowers and borrowers too large to be eligible for the MSLP.³ The majority of respondents reported that they were registered for the MSLP, with some banks reporting that they were already underwriting and submitting MSLP loans, and others reporting that they were preparing to make their first MSLP loans in the coming weeks.

In terms of banks’ outlook for participation, respondents expected C&I loan inquiries to increase in the next three months from MSLP-sized borrowers, assuming that economic activity progresses in line with consensus forecasts. However, only a modest share of banks expected their willingness to extend MSLP loans to increase over the same period.

Regarding factors that may have shaped banks’ participation in the MSLP, the survey inquired with registered banks about their reasons for not approving MSLP loans and with nonregistered banks about their reasons for not registering. Registered banks often cited concerns about borrowers’ financial condition before and during the COVID-19 crisis, as well as overly restrictive MSLP loan terms for borrowers as reasons for not approving MSLP loans. Meanwhile, nonregistered banks mentioned their ability to provide credit to eligible borrowers without the MSLP, as well as unattractive key MSLP loan terms for lenders as reasons for not registering.

Regarding borrower characteristics, the survey asked banks about MSLP-sized borrowers inquiring about C&I loans and about borrowers approved for MSLP loans. Inquiring borrowers reportedly suffered significant reductions in revenue or employment due to COVID-19, were often eligible for PPP loans, and had access to alternative bank products other than C&I loans or to alternative sources of funds other than bilateral bank loans. In contrast, approved borrowers were reportedly even more likely to be affected by the pandemic than inquiring borrowers, but less likely to have access to alternative bank products or sources of funds. In addition, approved MSLP borrowers were less likely to be new clients than inquiring borrowers.

Commercial and Industrial Loan Inquiries and Bank’s Participation in the Main Street Lending Program

(Table 1, questions 1–3, 5–7, and 13–14; exhibit 1)

Questions on C&I loan inquiries. On balance, banks reported that C&I loan inquiries from MSLP-sized borrowers, including both informal inquiries and formal loan applications, were basically unchanged since mid-June.⁴ Responses varied significantly across bank size groups, and across the banks within each size group. For instance, while a moderate net fraction of the large banks with total assets above $50 billion reported that C&I loan inquiries from MSLP-sized borrowers decreased since mid-June, a modest net fraction of the other banks with total assets below $50 billion reported that such inquiries increased.

In contrast to the inquiries from MSLP-sized borrowers, significant net fractions of both the large and the other banks reported decreases in inquiries from PPP-sized borrowers since mid-June. In addition, a significant net fraction of large banks reported decreases in inquiries from borrowers that were too large to qualify for the MSLP. While most other banks did not receive inquiries from borrowers too large to qualify for the MSLP, a significant fraction of those who received any such inquiries also reported a decrease in their number since mid-June.

Questions on banks’ C&I loan approvals and MSLP participation. A major fraction of the large banks reportedly approved at least 40 percent of the C&I loan inquiries that they had received from MSLP-sized borrowers since mid-June. In contrast, a smaller but still significant fraction of the other banks approved at least 40 percent of the C&I loan inquiries received from MSLP-sized borrowers.

When asked about the prevalence of MSLP loans among the approved C&I loans to MSLP-sized borrowers, significant fractions of the large and the other banks reported having approved MSLP loans.⁵ In most cases, however, the MSLP loans constituted less than 2.5 percent of the number of approved C&I loans to MSLP-sized borrowers by each participating bank.

Questions on banks’ MSLP registration status. While major fractions of banks in each size group reported being registered for the MSLP, there were notable differences in their operational status. First, a significant fraction of the large banks and a moderate fraction of the other banks reported that they were already underwriting and submitting MSLP loans. Second, significant fractions of banks of all sizes reported that they were registered and working to operationalize the program in the expectation of making loans in the coming weeks. Third, a significant fraction of the other banks reported being registered but still evaluating the program. Lastly, modest fractions of banks of all sizes declared they were registered, but expected to make MSLP loans only if financial conditions were to deteriorate.

A moderate fraction of large banks and a significant fraction of other banks reported not being registered for the MSLP. The majority of nonregistered banks reported that they were unlikely to register in the future.

Questions on banks’ outlook for C&I loan inquiries and MSLP loan approvals. Among banks expecting to receive inquiries from MSLP-sized borrowers, a moderate net fraction of the large banks and a significant net fraction of the other banks reported that they expected C&I loan inquiries from such borrowers to increase in the next three months under current consensus forecasts. However, only modest net fractions of banks expected their willingness to extend MSLP loans to increase under current consensus forecasts.

Considerations Regarding Banks’ and Borrowers’ Participation in the Main Street Lending Program

(Table 1, questions 8-11; exhibits 2 and 3)

Questions on reasons why registered banks did not approve MSLP loans. Banks that reported being registered were asked about reasons why they did not approve MSLP loans to borrowers of eligible size that made C&I loan inquiries. Major fractions of both large and other banks cited the following as important reasons for not approving MSLP loans: the borrower was already in poor financial condition before the COVID-19 crisis, the borrower was too severely affected by the crisis to remain viable and repay the loan, key loan terms were not attractive or prevented the borrower from qualifying, and the borrowers’ planned use of the MSLP loan was not financially sound.⁶

Registered banks that reported key MSLP loan terms as not attractive to borrowers or preventing borrowers from qualifying for the MSLP were asked to provide details about these terms.⁷ Major fractions of registered banks of all sizes mentioned borrowers’ debt-to-adjusted-EBITDA ratio being too high to meet MSLP loan requirements and borrowers’ required certifications and covenants being too restrictive, such as those limiting debt repayments, compensation, or capital distributions.⁸ In addition, major fractions of registered banks in the other size category mentioned the principal amortization schedule being too steep and the five-year maturity term being too short for the borrower.

Questions on reasons why banks did not register for the MSLP. A vast majority of nonregistered banks of all sizes reported as an important reason for not registering they were able to address the credit needs of MSLP-sized borrowers without participating in the MSLP. In addition, major fractions of banks of all sizes—especially of those in the other bank category—mentioned that key loan terms were not attractive to the lender, that the PPP was sufficient to address the credit needs of most of their borrowers, and that the MSLP registration requirements were too burdensome, as reasons for not registering.⁹

Banks that reported not registering because key MSLP loan terms were not attractive to the lenderwere asked to indicate those terms.¹⁰ Major fractions of banks of all sizes indicated that the loss sharing with the MSLP in the event of a default was too uncertain, and that the required certifications and covenants were too restrictive for the bank.

Borrower Characteristics

(Table 1, questions 4 and 12; Exhibit 4)

Questions on characteristics of borrowers inquiring for C&I loans. Almost all banks in both size categories that received C&I loan inquiries reported that MSLP-sized borrowers inquiring for C&I loans experienced significant reductions in their revenue or employment because of the COVID-19 crisis. In addition, major fractions of banks reported that inquiring borrowers would have also qualified for the PPP and had access to bank credit products other than C&I loans, such as commercial real estate loans, home equity lines of credit, or credit cards. Moreover, a significant fraction of banks reported that inquiring borrowers had access to alternative sources of funding other than bilateral bank loans, such as equity, corporate bonds, commercial paper, or syndicated loans. Furthermore, a major fraction of banks mentioned that inquiring borrowers were new clients.

Questions on MSLP borrower characteristics. Regarding borrowers approved for MSLP loans, the vast majority of banks in both size categories reported that such borrowers experienced significant reductions in revenue or employment because of the COVID-19 crisis, citing this characteristic as being “very common” to an even greater extent than in the case of inquiring borrowers. However, in contrast to inquiring borrowers, lower fractions of banks reported that the approved borrowers could qualify for PPP loans, had access to alternative bank credit products, or had access to alternative sources of funds. In addition, a lower fraction of banks reported that approved borrowers were new clients compared with inquiring borrowers.

Lastly, major fractions of banks reported that it was quite common for approved borrowers to show intention to use the proceeds to cover payroll and other expenditures for a few months. While a significant fraction of large banks indicated that approved borrowers intended to fund new capital expenditures, a major fraction of other banks indicated such intentions. Only a moderate fraction of large banks reported that approved borrowers intended to use the proceeds to roll over maturing bank loans or other debt or to offset credit-line cancellations, whereas a major fraction of other banks indicated such intentions.

This document was prepared by Andrew Castro, Quinn Danielson, Brandon Nedwek, and Andrei Zlate, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.