Distressed companies risk shut out from US Fed’s loans

But the Federal Reserve doesn’t typically lend to insolvent borrowers – those who have trouble meeting their financial obligations or paying down debt when it comes due. That’s to protect against situations where companies access taxpayer or government funds, only to file for bankruptcy and leave the government with mounting losses.

NEW YORK: Troubled companies behind on their bills or already in bankruptcy may be out of luck when it comes to getting federal funds from the US stimulus package.

Current law blocks the government from making loans to companies that have either filed for Chapter 11 bankruptcy or fail an insolvency test, according to lawyers who’ve studied the new legislation. In that scenario, it would be nearly impossible for such borrowers to access financing from the Federal Reserve.