On Thursday, April 9, 2020, the Federal Reserve announced additional financing solutions up to $2.3 trillion in loans to support organizations, banks as well as state and local governments. One solution in particular, the Main Street Lending Program will ensure that financial credit continues to be a source for small and mid-sized organizations.
The Main Street Lending Program (MSLP), part of the Coronavirus Aid, Relief, and Economic Recovery Act (CARES Act) will enhance support for small and mid-sized organizations that were in good financial standing before the COVID-19 crisis began, by offering loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion.
The MSLP offers two types of facilities — the Main Street New Loan Facility and the Main Street Expanded Loan Facility. Organizations will apply for the MSLP through U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies. Both facilities offer favorable loan terms including:
- A four (4) year maturity
- Interest rate SOFR (Secured Overnight Financing Rate, currently 0.01%) + 250 to 400 basis points
- Origination fee of 100 basis points
- Principal and interest payments will be deferred for one year.
- Prepayment permitted without penalty.
Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.
Other conditions for receiving Main Street loans include:
- Organizations seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers.
- Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act.
- Borrowers must attest that the loan proceeds are not being used to repay or refinance existing debt, with the exception of mandatory principal payments.
- Organizations that have taken advantage of the Paycheck Protection Program (PPP) under the CARES may also take out Main Street loans.
Main Street New Loan Facility
The Main Street New Loan Facility (MSNLF) will make four-year loans to organizations with up to 10,000 employees or $2.5 billion in 2019 annual revenues. The maximum loan amount will be limited to the lesser of:
- $25 million, or
- An amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA)
Interest expense will be priced at SOFR + 250-400 basis points (bps), with an additional 100bps origination fee. Principal and interest payments can be deferred for one year. Specific details from the Federal Reserve are available here.
The Main Street Expanded Loan Facility
The Main Street Expanded Loan Facility (MSELF) will make loans at the same terms as the new loan facility (MSNLF) above but will make loans in larger amounts. Specifically, loans are limited to the lesser of $150 million, 30% of the borrower’s undrawn bank debt, or six times EBITDA. Specific details from the Federal Reserve are available here.
As with the Small Business Administration loans, guidance will continue to emerge about accessing the available coronavirus relief assistance. For questions about accessing liquidity and responding to changed business circumstances in light of COVID-19 while navigating the terms and conditions of the Main Street Lending Programs identified above, please contact us.
For more coronavirus information, please visit our COVID-19 Resource Center.
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