The U.S. Treasury and the Federal Reserve (“the Fed”) have teamed up to create the Main Street Lending Program (“MSLP”) expected to officially launch this spring. The program offers relief through loans to qualifying small- and mid-sized businesses.

Brick Wall Showing Small Town Main Street Sign. Representing Main Street Lending Program offered to small and mid-size businesses.

The Main Street Lending Program uses funds from the new CARES Act to generate up to $600 billion in previously unavailable funding for eligible small- and mid-sized business borrowers. Eligible lenders, which include U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies, will initiate and service the loans, retaining 5% interest, with the remaining 95% interest being sold to the Fed.

In order to be eligible for the program, businesses must meet these criteria:

  • Have up to 10,000 employees or have reported $2.5 billion or less in 2019 revenues;
  • Be a U.S. entity with the substantial operations and a majority of employees based in the United States; and
  • Already have been in good financial standing prior to the COVID-19 pandemic.

The Main Street Lending Program includes two loan facilities – The Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF). Borrowers can qualify for only one of these two programs, based on their prior borrowing history.

Borrowers who do not currently have a loan will be eligible for the MSNLF loan with a minimum loan amount of $1 million and a maximum loan amount of $25 million. The loan is not permitted to exceed four times the business’ 2019 earnings before interest, taxes, depreciation, and amortization when added to that business’ existing outstanding and committed but undrawn debt.

Those who already have an existing loan will be eligible for the MSELF loan with a minimum amount of $1 million and a maximum amount of $150 million. The loan amount cannot exceed 30% of the business’ existing outstanding and committed but undrawn debt. It also cannot exceed six times the business’ 2019 earnings before interest, taxes, depreciation, and amortization when added to its existing outstanding and committed but undrawn debt.

Those eligible businesses who sign up for a Main Street Loan Program will be required to confirm their eligibility by acknowledging that they:

  • Require the loan funds due to circumstances surrounding the COVID-19 pandemic;
  • Will not use the proceeds of the MSLP to repay other loan or line of credit balances;
  • Will make reasonable efforts to maintain payroll and retain employees during the term of the loan; and
  • Will follow restrictions on compensation, stock repurchase, and dividends during the course of the loan and for 12 months after it’s repayment that apply to direct loan programs as detailed under section 4003(c)(3)(A)(ii) of the CARES Act.

Main Street Loans are four-year loans that carry an adjustable interest rate of Secured Overnight Financing Rate (SOFR) plus 250-400 basis points.  All principal and interest payments are deferred for one year, borrowers can pre-pay without penalties or fees, and the loans are not forgivable.

Particulars of the Main Street Loan Program may still change as The U.S. Treasury and Federal Reserve take comments from lenders, borrowers, and other key stakeholders through the comment period which is scheduled to end on April 16, 2020. The timeframe for the Main Street Lending Program to be operational is expected to be announced following consideration and incorporation of select comments.

Untracht Early will keep you updated on these developments. Please contact your advisor if you have questions concerning this pending program.