Main Street is the central bank’s only emergency lending effort to experience actual credit losses — losses that could have been much larger if the program had reached its $600 billion lending cap. The Fed still expects to be made whole over the lifetime of the program, however, with interest payments covering some losses and an up to $75 billion Treasury backstop absorbing the rest.

“The Main Street Lending Program worked with banks to provide much needed loans to small and medium-sized businesses and nonprofits that were in sound financial condition before the pandemic, but that were hurt by the sudden reduction in economic activity through no fault of their own,” a Fed spokesperson said. “The program, along with other efforts, helped keep workers employed and businesses afloat during a very difficult and uncertain time.”

Tough Terms

Banks underwrote the loans but the Fed assumed the majority of the risk, as lenders were only required to retain 5% of the balance on their books. By design, the program was meant for companies in need of funding but deemed too risky to qualify for a traditional loan.

“Many people in Congress were hearing from mid-sized businesses saying a lot of employment is going to be lost if we end up closing,” Rosengren said. “There was a risk that many of these firms that employ substantially more than a small firm would possibly not make it to the other side.”

While the lending terms were onerous, Main Street offered the only survival option for some companies.

The payment schedule — which required no payments on interest or principal in the first year — is now snowballing. Interest rates have risen in a way unimaginable four years ago, following a decade of both low inflation and borrowing costs. Those supersized interest payments, Paget said, have thwarted businesses’ ability to invest in their own firms.

Tejune Kang’s marketing company, Atypical Digital, faithfully made interest payments on its $3.5 million loan, even as they surged from $11,000 a month to $25,000. But he couldn’t keep up when the first balloon payment came due last year. Though Kang was able to get a six-month extension, the $65,000 combined monthly interest and principal bill was still too much.

“It feels like — did I take money from the devil? What did I sign up for?” Kang said. “It’s a tough situation.”

The Fed has allowed some businesses to extend their loans, but not past 2026. Atypical Digital, which works with companies including Adobe Inc. and Toyota Motor Corp. on everything from web optimization to software customization, saw large contracts dry up during the pandemic. It turned to smaller companies to fill the gap, but the contracts brought in less money. To help make the payments, Kang has laid off about 60% of his staff.

While the Main Street loans didn’t have a specific employment mandate like the PPP did, the Fed told companies to make “commercially reasonable” efforts to retain employees while loans were outstanding.

Main Street Lending Program Basics

The program made a lot of sense for businesses that were particularly affected by the pandemic, like those in the service sector, which made up a majority of the loans. Smaller cruise companies, gyms and entertainment venues comprised many of the borrowers. Even so, take-up was low. In total, the $17.5 billion of loans represented just 3% of the program’s $600 billion cap.

Low usage along with the burdensome loan terms have led critics to argue Main Street should have been a direct help program, more similar to the PPP, rather than loans that have to be paid back. At the time, however, there was little appetite to add to the pandemic bill.

Bharat Ramamurti, who headed a Congressional commission charged with overseeing the Fed’s pandemic programs, said some defaults in a program like this are inevitable.

“If there weren’t any, I would argue that it meant that the facility wasn’t doing a good job because it was being far too restrictive in terms of what types of companies were getting support,” he added.

But Brian Miller, the Special Inspector General for Pandemic Recovery, expects many more companies to default over the next year.

“The defaults are going through the roof and will continue to do so,” he said.

Some of those defaults include borrowers who never intended to use the money for their businesses, Miller said. As a result, defaults can also be used as a warning signal for law enforcement to find and punish fraud, which permeated several pandemic-era programs. More than 70% of Miller and his staff's investigations into Main Street loans involve a default, a spokesperson for SIGPR said.

That was the case in the investigation of a $424,168 Main Street loan, borrowed by an Oklahoma woman ostensibly to cover payroll and expenses for her children’s clothing company, according to the government watchdog. Instead, she used the funds to build a house and buy a luxury car before defaulting on the loan. She pleaded guilty to bank fraud and money laundering charges, and was sentenced to 20 months in federal prison in November 2023.

Post-Pandemic World

For some Main Street borrowers, the realities of the post-pandemic economy — unforeseen in 2020 — are making paying back the debt impossible. World of Beer, a restaurant and bar chain specializing in craft brews, used part of its $8 million Main Street loan to open a new location in the lobby of an office building in Arlington, Virginia. It was banking on a steady stream of after-work clients that never materialized in a sluggish return-to-office environment.

World of Beer filed for Chapter 11 bankruptcy, following other casual dining establishments this year, and has shuttered all three of the locations it opened with the Main Street money, said Steven Berman, an attorney and partner at the law firm Shumaker, Loop & Kendrick, LLP, which is representing World of Beer in its bankruptcy case.

“People misjudged how dramatically Covid would affect the way people move around in town, the way people do businesses, where they go, how they spend their money,” Berman said. “And then you add to that inflation, increased interest rates and an increase in cost of goods needed to run a food and beverage company and you sort of have a perfect storm of economic negatives that have affected a lot of businesses in the country.”