The Trump administration says a new bailout program will help 35 million Americans. Will it?

The Main Street Lending Program is the next marquee effort of the Coronavirus Aid, Relief and Economic Security Act, which Congress passed in March. It is set to begin after weeks of criticism of the first, the Paycheck Protection Program for small businesses. While it's too early to judge a program that hasn't begun, the Main Street effort appears to have replicated some of the flaws of the paycheck program, and it has added some new ones.

Experts from across the political spectrum already are concerned that the Main Street program will not come close to meeting the ambitious goals touted by the administration. They worry it will move too slowly, that lenders won't embrace it and that companies won't seek out the loans because they're not sure whether they'll be able to pay them back.

"My fear is that no one will lend and no one will borrow," said Glenn Hubbard, an economist at Columbia Business School who served in the George W. Bush administration.

Even if companies do get Main Street loans, there is nothing in the program stopping them from continuing mass layoffs. Bankers, former government officials and academics from across the political spectrum told ProPublica that direct support for workers and businesses, not just loans, might be more effective. The CARES Act, however, requires that the money appropriated by Congress be used for loans, not grants. And so far Congress has declined to provide more aid, with negotiations stalled over another economic relief package.

During an online event Wednesday, Fed Chair Jay Powell called the Main Street program "unique in our history" and "operationally very complex."

"It's an incredibly diverse group of companies, very diverse industries and credit needs," Powell said. "And we're trying to create products with Main Street that address as broad a swath of those needs as we possibly can."

The Treasury did not respond to questions.

Under the paycheck program, small companies applied to banks for government loans that would be forgiven if they used most of the money to keep workers on payroll. Main Street, in contrast, is a pure loan program designed to make sure that companies with solid business models make it through lockdowns required to stop the pandemic. Recipients have a year before they have to start paying back the loan, which can range from $500,000 all the way up to $200 million, and they're barred from issuing dividends or buying back stock until a year after the loan is paid back.

"To go from the grants of the Paycheck Protection Program to a program that is straight lending is a problem," Hubbard said, explaining that these businesses need money without the need to pay it back with interest.

If the Main Street program is useful, it won't be for businesses on literal Main Streets across America. The minimum loan amount of $500,000 makes it inaccessible to the small businesses — the local pizzeria or day care center — currently gasping for cash across America. And the Fed's idea of what constitutes a midsized business is many orders larger than is commonly meant by the term; the National Center for the Middle Market at Ohio State University, for example, defines the upper bound as $1 billion in revenue.

But in the Main Street program, there's not much limit on how large a company can be. On the high end, the loans will be available to companies with up to 15,000 employees or annual revenue of up to $5 billion. According to Fortune, only 539 individual companies in the entire country brought in more than $5 billion last year.

Lax conditions

One problem stems from the drafting of the law, which proposes some restrictions but also includes a major escape clause.

In the CARES Act, lawmakers wrote that Treasury Secretary Steven Mnuchin should "endeavor to seek" to create a loan program for medium-sized businesses that would require several conditions: Companies could not oppose union organizing or break their union contracts; recipients would be required to restore 90% of the company's workforce as of Feb. 1; and they could not outsource or offshore jobs until two years after the term of the loan.

Democrats celebrated their efforts on the behalf of working people. Senate Minority Leader Chuck Schumer claimed his party had secured "robust worker protections attached to all federal loans for businesses."

In fact, those conditions were little more than suggestions, which the Trump administration and the Fed quickly cast aside. The Fed's Main Street program includes none of those protections; instead, it requires companies only to make "commercially reasonable" efforts to keep employees. There is essentially nothing stopping companies that take the loans from laying off more workers.

Schumer's office did not respond to requests for comment.

Some observers believe there's a legitimate reason the Treasury and the Fed opted not to attach worker protections to the Main Street loans: If borrowers are locked into their current workforce structure, they won't be able to adapt to a post-COVID-19 world. Manufacturers might need to automate more, for example, to physically separate workers and avoid a return of the virus. Companies also may be in a better position to rehire more of their workers if they use a Fed loan to retrofit their operations to better control infections.

To progressives and labor unions, however, there's little point in subsidizing loans if the companies receiving them don't use the cash to support jobs.

"If they get the money, and then they lay people off, or they move their operations to another country where there's less restrictive worker protections, why is it in [taxpayers'] interest to be giving them money?" said Dan Mauer, head of government affairs for the Communications Workers of America.

As the last deep recession demonstrated, it's much harder to escape from unemployment than it is to get a new job while you've still got the old one. And requiring that the loan be spent to support jobs may reduce the chances that companies spend the money on projects that instead primarily benefit creditors or shareholders, such as acquiring other businesses.

"I've asked the Fed to impose these requirements on bailout recipients," Sen. Elizabeth Warren said in a statement to ProPublica. "Anything less would represent a giveaway to large corporations and CEOs to use this money to enrich themselves."

The rules got even more friendly to large corporations as the Main Street program evolved.

After initially announcing plans to set up the program, the Fed fielded 2,200 comments from interested parties (which it has refused to disclose publicly). In late April, the Fed announced an overhaul, boosting the workforce size cap for borrowers to 15,000 employees and the maximum loan amount to $200 million. It also allowed companies to qualify with a rosier calculation of their earnings, dispensed with the requirement that companies say they needed the money because of impacts from COVID-19 and allowed the loans to be used for refinancing existing debt.

Thus, the program became more attractive both to less healthy companies that might not otherwise have qualified, and to more healthy companies that might simply find the interest rates appealing. Gregg Gelzinis, a senior policy analyst with the left-leaning Center for American Progress, calls that a waste of money.

"We shouldn't be providing cheap government dollars to companies that either don't need it or are facing severe difficulties completely unrelated to COVID," Gelzinis said, noting that highly indebted oil and gas companies in particular lobbied for the rules to be loosened.

Also, allowing Main Street loans to refinance existing debt may improve a company's financial standing, but not generate new spending that would stimulate growth.

"If the Fed loans are used to refinance, the money flows back to lender's balance sheets, not the economy," said Amias Gerety, who served as the Treasury Department's acting assistant secretary for financial institutions until January 2017. "Allowing companies to repay earlier debt changes the character of the program, almost as significantly as making the program more available to larger companies."

Banks might not lend

Another problem is the mechanism by which the program will be implemented: through banks.

The Federal Reserve doesn't normally lend to nonfinancial companies. So, as with the Paycheck Protection Program, banks will take on the responsibility of studying the finances and prospects of each business that wants a Main Street loan and decide whether to approve it.

To protect taxpayers and incentivize the banks to make good loans, the program requires banks to keep between 5% and 15% of the debt — and thus a portion of the risk — on their own books. But that clause also deter banks from participating.

Putting their own money on the line could be an obstacle, said Christy Hester, director of growth and development at the Independent Bankers Association of Texas. "It means they've got accounting and reporting requirements," she said. "Just setting up the accounting side of that and the servicing side of that, if it's not already set up, that's a pretty big burden for a small community bank."

The Main Street program compensates banks by allowing them to charge an origination fee of up to 1% of the loan, plus an annual servicing fee. Because it's so difficult to assess the risk of lending money in the climate of pandemic-induced uncertainty, that might not be enough.

It's not surprising that banks would prefer to receive higher fees and take on less risk. But it does mean that running the program through the banks could slow things down.

So far, only a handful of banks have mentioned in their regulatory filings that they intend to participate; most say only that they are considering it. In its response to the Fed's overhaul, the American Bankers Association urged further changes to boost demand for the program and bank participation, like lowering the minimum loan size even more and relaxing the loan terms even further.

Borrowers might not borrow

Despite the cash crunch facing thousands of companies that have seen their businesses drastically curtailed, it's not clear that the Main Street Lending Program is the right medicine.

Under the initial plan announced in early April, the minimum loan amount was $1 million and would only be accessible to companies with at least $165,000 in annual earnings, and more than that for companies with debt.

When the Fed and Treasury revised the Main Street terms late last month, the only concession to small businesses was dropping the minimum loan amount to $500,000. But that's still far higher than the $100,000 that the community bank trade association had asked for. "Otherwise," the Independent Community Bankers of America warned in an April 17 comment, "Main Street businesses and community banks will not participate."

Even if they could qualify for the Main Street program, plenty of businesses worry about their ability to repay a loan of more than a half-million dollars and having a huge debt burden might hamstring their ability to invest after the pandemic has passed. Grants might be more likely to help businesses survive what looks to be a prolonged economic downturn.

"Borrowers have to be confident that they're going to be able to generate cash flow to pay back the principal and interest," a senior loan industry official said. "How can you project that right now during the crisis?"

As with the Paycheck Protection Program, the central role of banks could again give a leg up to their existing clients rather than the neediest or most deserving businesses, according to industry observers. That's because banks must approve the loans, so they might favor companies for whom much of the time-consuming work of underwriting and due diligence is already done.

Kathryn Judge, a professor at Columbia Law School who specializes in financial regulation, said that, as the program gets underway, it will be important to scrutinize the role of the banks as well as how companies that get the loans treat employees.

"Not just the Fed, but Congress and oversight bodies should make clear that if you're taking these funds, we have the ability to come in and ask you to show what were those 'commercially reasonable' efforts' to keep workers," Judge said.

So far, however, those efforts haven't been terribly effective.

In mid-April, Schumer and Democratic members of the Senate Banking Committee sent a long letter to the Fed and Treasury asking basic questions including "What is the Federal Reserve's strategy?" and "Will the strategy help protect workers?" The letter, which requested answers by April 24, has received no response.

Jeff Ernsthausen contributed reporting.

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they're published.