Main Street Lending Program Leaves 30% of Borrowers at Risk

Why It Matters

As the Federal Reserve wound down its emergency lending programs in early 2021, a troubling pattern emerged in one of its signature pandemic relief efforts: the Main Street Lending Program was failing to deliver on its promise. A new Government Accountability Office (GAO) report released in June 2026 reveals that nearly 30 percent of the roughly 1,830 loans made through the program "had experienced or were at risk of loss." The findings underscore a fundamental challenge in emergency lending during crises—the borrowers who need help most often struggle to repay when conditions tighten.

The Main Street Lending Program comprised five separate Federal Reserve facilities designed to support small and midsized businesses and nonprofits when traditional lending dried up during the COVID-19 pandemic. The program authorized $16.6 billion in total loans, positioning itself as a critical alternative to the Paycheck Protection Program for businesses that fell outside that program's parameters. Yet the data now shows that the program's structure, interest rate mechanics, and the economic headwinds that followed created conditions where repayment became progressively harder, not easier, as time passed.

The Big Picture

The loans carried a variable interest rate tied to London Interbank Offered Rate (LIBOR) plus 300 basis points, which meant borrowers faced mounting costs as the Federal Reserve aggressively raised rates to combat inflation. When the program originated loans between July 2020 and January 2021, the benchmark rate hovered near zero, making initial interest rates around 3 percent. By December 2023, the median Main Street loan interest rate had nearly tripled to approximately 8.5 percent. As of early January 2026, rates settled at approximately 6.9 percent—more than double the original expectation.

The impact on repayment capacity was measurable and severe. For every percentage point increase in interest rates, Main Street loans had about a 17 percent decreased likelihood of being fully repaid. When borrowers faced the first principal payment in June 2023, the likelihood of full repayment dropped 58 percent relative to when they were making interest-only payments. Eight months later, at the second principal payment in June 2024, the repayment likelihood fell an additional 44 percent.

The final balloon payment proved catastrophic. Approximately 70 percent of Main Street borrowers were unable to make the final balloon payment on time, leaving nearly $2 billion in authorized loan amounts at risk of non-repayment. By the program's maturity date in early January 2026, 83 percent of Main Street loans had either been fully repaid or become impaired before their scheduled due date—meaning the loans were already in trouble before they came due.

How Do Factors Influence Outcome?

Loans to the largest businesses, those with revenue exceeding $42.1 million, had the highest repayment rates and lowest charge-off rates. Loans to the smallest businesses, with revenue of $3.09 million or less, had the lowest full repayment rates and highest charge-off rates. The gap revealed how the program's fixed structure benefited larger, more stable firms while smaller borrowers bore the brunt of rising rates and economic uncertainty.

Geographic performance varied dramatically. The information sector posted the strongest repayment rate at approximately 84 percent. The natural resources and mining sector lagged at approximately 60 percent, with higher charge-off rates than most other sectors. The financial activities sector fared little better at approximately 64 percent.

Lender size also mattered. The 40 percent of Main Street loans originated by lenders with assets between $10 billion and $250 billion had different outcomes than the 24 percent of loans from lenders with assets below $1 billion. Lenders with assets greater than $250 billion achieved a repayment rate of approximately 87 percent for their Main Street loans, while smaller lenders with assets below $1 billion had the lowest borrower repayment rates overall.

The Buyback Problem

As maturity dates approached and defaults accumulated, the Federal Reserve Bank of Boston initiated a formal buyback program in June 2025, allowing lenders to sell troubled loans back. During this program, the Reserve Bank sold 92 loans back to lenders at a loss. Across all Main Street loans, approximately 6 percent were sold back to lenders at a net loss, representing approximately $1.4 billion in authorized loan amounts. Lenders paid on average about $0.50 for each dollar of Main Street loans still outstanding when sold back.

Approximately 11 percent of Main Street loans were charged off, representing approximately $1.3 billion in charged-off loan amounts. Approximately 14 percent of Main Street loans remained outstanding beyond their scheduled maturity date, representing approximately $2 billion in authorized loan amounts. Only 70 percent of the roughly 1,830 Main Street loans were fully repaid, representing approximately $12 billion.

The Bottom Line

The Main Street Lending Program was one of 13 emergency lending programs the Federal Reserve authorized in response to COVID-19. Nine of these facilities received funds appropriated through the CARES Act, which authorized at least $454 billion for Treasury to support Federal Reserve emergency lending facilities. All nine CARES Act facilities stopped purchasing assets or extending credit by January 8, 2021.

As of Sept. 30, 2025, the Federal Reserve had returned about $100.5 billion to Treasury from CARES Act facilities. About $2 billion remained available to cover potential losses from CARES Act facilities. The CARES Act facilities conducted about $41 billion in total transactions.

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