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 backs lenders so they can offer stimulus loans to medium-sized businesses that may not have qualified for earlier Coronavirus Aid, Relief and Economic Security (CARES) Act stimulus plan loan options, which were generally limited businesses to 500 employees or less.

More specifically, the Main Street Business Lending Program establishes two new loan facilities:

  1. Main Street New Loan Facility (for new loans)
  2. Main Street Expanded Loan Facility (to expand existing loans).

This page describes loans under these two loan facilities because they are most relevant to most businesses

Not all details are out yet, but here is what we know so far about these two new loan programs.

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Which Businesses Are Eligible?

The following applies for loans under both the Main Street New Loan Facility (MSNLF, for new loans), and the Main Street Expanded Loan Facility (MSELF, to expand existing loans).

Businesses and nonprofits with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.

A minimum employee amount has not been announced.

Each Eligible Borrower must be a business that is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States.

A business can only participate in one type of loan program under the Main Street Lending Program.

So, if a business already got a loan under the Main Street New Loan Facility, it cannot also get a loan under the Main Street Expanded Loan Facility — and vice versa.

Eligible Borrowers that participate in the Facility may not also participate in the MSELF or the Primary Market Corporate Credit Facility.

The business cannot be a debtor in any stage of bankruptcy.

Recipients must have incurred or will incur “covered losses” as a result of COVID-19.

Details on Main Street Loans (both MSELF and MSNLF)

Eligible Main Street Loans will have the following features:

  • 4-year maturity
  • Amortization of principal and interest deferred for one year
  • Adjustable Secured Overnight Financing Rate (“SOFR”) of +250-400 basis points
  • Prepayment of the loan is permitted without penalty
  • Minimum loan size is $1 million
  • Lenders are authorized to charge borrowers certain fees at set amounts.

For MSNLF loans only, the maximum loan size that is the lesser of:

  1. $25 million
  2. An amount that, when added to the borrower’s existing outstanding and committed by undrawn debt, does not exceed 4x the borrower’s earnings in 2019 (before interest, taxes, depreciation, and amortization)

For MSNLF loans only, the maximum loan size that is the lesser of:

  1. $150 million
  2. 30% of the borrower’s existing outstanding and committed but undrawn bank debt
  3. An amount that, when added to the borrower’s existing debt, does not exceed 6x the borrower’s earnings in 2019 (before interest, taxes, depreciation and amortization)

What Restrictions Will Be Put on the Loan?

  • Loan recipients cannot use loan proceeds to repay another loan balance.
  • Loan recipients cannot repay other debts of equal or lower priority (with the exception of mandatory principal payments) until the Main Street Loan has been fully repaid.
  • 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.
  • The recipient must remain neutral in any union organizing effort during the term of the loan.

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).

The Federal Reserve is still taking public comments until April 16, 2020 so not everything is final until the Federal Reserve publishes final details sometime after that date.

(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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