Main Street Lending Program – What you need to know

On April 9, 2020, the Federal Reserve announced the $600 Billion Main Street Lending Program, which provides financial backing for lenders so they can offer stimulus loans to small-to-medium-sized businesses that may not have qualified for earlier Coronavirus Aid, Relief and Economic Security (CARES) Act stimulus loan options. More specifically, the Main Street Business Lending Program establishes three new loan facilities: (1) the Main Street New Loan Facility, (2) the Main Street Priority Loan Facility and (3) the Main Street Expanded Loan Facility.  Earlier CARES Act stimulus loans like the Paycheck Protection Program Loans were generally limited to businesses with 500 employees or less, but these new loan facilities may be available for companies with up to 15,000 employees. This page explains how these loans work, who is eligible and the difference between the three loan options.

June 10, 2020 Update: On June 8, 2020, the Federal Reserve Board announced changes to the upcoming Main Street Lending Program that expands its scope to help more small and medium size businesses.

Some of the announced changes include:
1. Minimum loan sizes for certain loans have been reduced from $500k to $250k.
2. Maximum loan sizes have been increased across the board.
3. Loan terms have been increased to from 4 years to 5 years.
4. Repayment periods that were originally deferred for 1 year, are now deferred for 2 years.
5. The Reserve Bank’s participation has been raised to 95% of all loans.

More information on these updates can be found on this press release from the Federal Reserve. You can also read more about the Main Street Lending Program on this page.

 

The Three Loan Facilities

  • 1. Main Street New Loan Facility (“New Loan Facility”): The New Loan Facility provides backing for eligible lenders to make new unsecured or secured term loans to eligible businesses.
  • 2. Main Street Priority Loan Facility (“Priority Loan Facility”): The Priority Loan Facility provides backing for eligible lenders to make new unsecured or secured term loans to eligible borrowers, but with different loan terms than New Loan Facility loans. (See below for details on these differences.)
  • 3. Main Street Expanded Loan Facility (“Expanded Loan Facility”): The Expanded Loan Facility eligible borrowers who have existing loans or lines of credit with eligible lenders to increase the amounts of their existing loans or lines of credit.

Which Businesses Are Eligible?

The following applies for loans under any of the three Main Street Loan Facilities. To be an “Eligible Business” the business:

  • Must be a for profit business concern;
  • Must either (a) have 15,000 or fewer employees or (b) have had annual revenue in 2019 of $5 billion or less;
  • Must be organized in the United States and have significant operations in the United States;
  • Must have the majority of its employees in the United States;
  • Must not have received support under the Coronavirus Economic Stabilization Act Of 2020; (Important note: a business is still eligible if it recieved a Paycheck Protection Program loan, which is not covered under the Coronavirus Economic Stabilization Act Of 2020)
  • Must have been established before March 13, 2020
  • Must have been in sound financial condition prior to the COVID-19 pandemic

Loan Terms for Main Street Loans

Main Street loans will have the following features:

  • Loan Term: 5 years
  • Minimum Loan Size:
    • New Loan Facility & Priority Loan Facility: $250,000
    • Expanded Loan Facility:  $10,000,000
  • Maximum Loan Size
    • New Loan Facility & Priority Loan Facility: The lesser of (a) $35 million; or (b) an amount that, when added to existing outstanding and undrawn available debt, does not exceed four times the borrower’s 2019 EBITDA.
    • Priority Loan Facility: The lesser of (a) $50 million; or (b) an amount that, when added to existing outstanding and undrawn available debt, does not exceed six times the borrower’s 2019 EBITDA.
    • Expanded Loan Facility:  The lesser of: (a) $300 million; (b)  35% of the borrower’s existing outstanding and undrawn available debt that is equal in priority and secured status with the loan; or (c) an amount that, when added to existing outstanding and undrawn available debt, does not exceed six times the borrower’s 2019 EBITDA.
  • Interest rate: Adjustable rate of LIBOR (1 or 3 month) + 300 basis points
  • Amortization:
    • Principal payments deferred for two years and interest payments deferred for one year (unpaid
      interest will be capitalized)
    • Year 3: 15% of principal due at the end of the third year.
    • Year 4: 15% of principal due at the end of the fourth year.
    • End of Year 5: Balloon payment of 70% of principal due at maturity.
  • Prepayment: Permitted without penalty
  • Collateral: Secured or Unsecured

What Restrictions Will Be Put on the Loan?

  • Loan recipients of the New Loan Facility and Expanded Loan Facility cannot use loan proceeds to repay another loan balance. (Only the Priority Loan facility may be used to refinance existing debt.)
  • Loan recipients cannot cancel or reduce any outstanding line of credit with any lenders.
  • The CARES Act states that the loan must be used to keep ninety percent of the recipient’s workforce at full compensation until September 30, 2020.
  • The recipient must intend to restore not less than 90 percent of its workforce in place on February 1, 2020, and all compensation and benefits to its workers not later than four months after the end of the public health emergency related to COVID-19.
  • The recipient cannot outsource jobs until 2 years after the loan is repaid.
  • Recipients may not pay dividends or buy back shares of its company during the course of the loan or for 12 months after the loan has been paid off.
  • Highly paid members of companies that receive a large business loan cannot increase compensation of any employee whose compensation already exceeds $425,000 or offer these employees significant severance benefits.

Will Main Street Loan be Forgivable?

No. Unlike Paycheck Protection Loans, Main Street Loans are not forgivable.

What lenders will offer Main Street Loans?

Lists of specific lenders are not yet available, but eligible lenders will be U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies. Businesses that are interested in these loans should first reach out to their existing bank(s).

(Note: This article does not cover other facilities offered by the Federal Reserve beyond the Main Street Lending Program. For more information on those click here.)

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