On April 30, 2020, The Federal Reserve announced it will expand its Main Street Lending Program (MSLP). Alterations to the Main Street Lending Program were made in direct response to public input solicited by and submitted to the Federal Reserve.
The expanded Main Street Lending Program makes more small and mid-sized businesses eligible and adds a third loan option to the mix for those businesses whose operations have been adversely impacted by COVID-19. The aim of the Main Street Lending Program is to offer these businesses financial support and increased credit flow, provided that they had been in sound financial standing before the pandemic began. The program draws its $75 billion of funding from CARES Act provisions.
Prior to the program’s modifications, Main Street loans were to be made available only to businesses with up to 10,000 employees and revenues of up to $2.5 billion. The program expands the parameters to include businesses with up to 15,000 employees and $5 billion in revenues so that more businesses can participate. It also decreases the minimum loan size permitted from the previous limit of $1 million to a new limit of $500,000.
The expanded Main Street Lending Program’s three loan options include: New Loans, Priority Loans, and Expanded Loans. Borrowers will only be able to participate in one of the three Main Street Loan Programs summarized here:
|Main Street Lending Program Loan Options||New Loans||Priority Loans||Expanded Loans*|
|Term||4 years||4 years||4 years|
|Minimum Loan Size||$500,000||$500,000||$10,000,000|
|Maximum Loan Size*||The lesser of $25M or an amount that, when added to outstanding and undrawn debt, does not exceed 4.0x adjusted 2019 EBITDA||The lesser of $25M or an amount that, when added to outstanding and undrawn debt, does not exceed 6.0x adjusted 2019 EBITDA||The lesser of $200M or 35% of existing outstanding and undrawn debt, or an amount that, when added to outstanding and undrawn debt, does not exceed 6.0x adjusted 2019 EBITDA|
|Lender’s Risk Retention (remainder purchased by MSLP)||5%||15%||5%|
|Payment (year one deferred for all)||Years 2-4: 33.33% each year||Years 2-4: 15%, 15%, 70%||Years 2-4: 15%, 15%, 70%|
|Rate||LIBOR + 3%||LIBOR + 3%||LIBOR + 3%|
Source: Federal Reserve Board
*Lenders that have an existing loan or revolving credit facility with a borrower may increase or expand that facility by adding a new increment or tranche.
Unlike Paycheck Protection Program loans which are awarded solely to small businesses struggling because of the pandemic, Main Street loans are not forgivable. Borrowers seeking Main Street Lending Program loans will, however, be obligated to abide by the direct loan restrictions included in the CARES Act which forbid stock buybacks and dividends. Additionally, though borrowers are expected to retain their employees to as great of an extent as possible, there are no requirements that those small and mid-sized businesses which receive a Main Street Lending Program loan need to adhere to specific employee headcount or salary guidelines.
The Federal Reserve has not announced when the Main Street Lending Program will begin accepting applications, though we will keep you updated as new developments arise.
For more information on the expanded Main Street Lending Program and how it may apply to your business, see our prior article (Main Street Lending Program Will Provide Financing to Eligible Small and Mid-sized Businesses in Need) for additional details or contact your Untracht Early advisor.