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June 23, 2020

New Details Emerge on the Main Street Lending Program

Header for the Main Street Lending Program

More information is coming to light about the Main Street Lending Program, an initiative to facilitate lending to small and mid-sized businesses. Interest in the program, which was expanded by coronavirus legislation, has been stymied while the Federal Reserve (the Fed) worked out some of the logistical details, including recommendations for term sheets. On June 15, more of those details emerged including opening the lender registration for the program, and so activity may finally be picking up.

Review on How it Works

The Main Street Lending Program offers standardized loan terms and lower interest rates than typical commercial loans. Through a special purpose vehicle (SPV), the Federal Reserve Bank of Boston will purchase loan participation through eligible lenders. The program will operate through three facilities:

  • Main Street New Loan Facility
  • Main Street Priority Loan Facility
  • Main Street Expanded Loan Facility

The facilities use the same lender and borrower criteria and differ based on loan amount parameters as well as the EBITDA and the debt position of the borrower prior to receiving the loan. The Fed has been encouraged to process loans to for-profit businesses immediately while they are still ironing out details related to a potential expansion of the program to not-for-profit organizations (further details below).

Currently, the SPV is set to cease loan participation on Sept. 30, 2020, unless the Federal Reserve Board and the Treasury Department decide to make an extension.

Current Expansion Coverage

When it was originally rolled out by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Main Street Lending Program (MSLP) supported loan vehicles for organizations with up to 10,000 employees and revenues of no more than $2.5 billion in revenue that met other lending requirements. The borrower requirements have now been expanded to include organizations with up to 15,000 employees and 2019 revenues of up to $5 billion.

Additionally, the minimum loan amount has now been lowered from $500,000 to $250,000 while the maximum loan amount has also been increased for each of the loan facilities. Terms of loans are now five years (up from four when it first was rolled out). The deferral on the principle on loan payments is now two years. The Fed has also increased its participation to 95% for all loans administered. Participation from the Fed helps stabilize the risk position that lenders have to take on when facilitating the program loans.

Term sheets and other guidance from the Fed concerning eligible businesses are also now available, which may bring additional eligible lenders to the table.

Potential Nonprofit Credit Extension

New details emerging may remove barriers organizations have had to accessing available funding if they are classified as a not-for-profit organization. This expansion by the Federal Reserve Board is meant to provide much needed aid to a crucial industry sector.

Future modifications might allow for increased parameters of eligibility, including lowering the minimum number of employees as well as financial thresholders related to performance, liquidity, and the borrower’s ability to finance debt obligations. The Fed is also considering changes to the limits regarding operational history, and whether an organization has received sizable endowments.

Differences from the Payroll Protection Program and Other Considerations

The MSLP differs from the Payroll Protection Program (PPP) in terms of financial eligibility, and other determining factors present more diverse options for businesses. The Main Street loan does not have the same limitations as the PPP regarding paying employees, but extends into other aspects of business operations to include any expense. Businesses that received PPP loans remain eligible to apply to Main Street loans provided eligibly is met within the terms and guidelines provided by the Fed including applying for only one MSLP loan. However, unlike the PPP Loans, the Main Street Loans are not forgivable.

This is not to say there are no expectations about headcounts. Businesses eligible for the MSLP have been asked to make a “commercially reasonable effort” to retain employees, which means that those having to furlough or terminate employees due to financial constraints will still be able to apply for a loan. Businesses that have received a loan through the PPP must count that debt as part of the loan calculation towards their Main Street application until the loan is forgiven or fully repaid.

For more information about the MSLP, please contact a member of our team. Stay up-to-date on the other developments coming out of the COVID-19 pandemic by visiting our resource center.

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