Main Street Loan Changes Expand Accessibility

By June 11, 2020 June 15th, 2020 COVID-19 Insights
Main Street Loan Changes Expand Accessibility

On June 8, 2020 the Federal Reserve announced revisions to its Main Street Lending Program. The latest modifications will make it possible for more small and mid-sized businesses to receive financial support once the program officially launches.

The principal objective of the Main Street Lending Program is to increase the credit flow for businesses with 15,000 or fewer employees by way of three different lending facilities for new and expanded loans. One caveat is that the business must have been in good financial standing prior to the COVID-19 crisis.

Throughout the past few weeks leading up to the June 8 announcement, the Federal Reserve held numerous teleconference sessions to explain the Main Street Program and gather feedback from lenders and borrowers. With input from these sessions and other sources, the Federal Reserve has further modified the financial terms and conditions of the various lending facilities to attract and meet the needs of a broader range of borrowers and lenders.

Among the changes announced on June 8 are the following:

  • Lowered minimum loan size to $250,000 (previously $500,000).
  • Increased the maximum loan size for all three loan facilities in the program.
    • New loans can now be as much as the lesser of $35 million (up from $25 million) or an amount that, when added to the outstanding and undrawn available debt, does not exceed four times adjusted EBITDA.
    • Priority loans can now be the lesser of $50 million (up from $25 million) or an amount, when added to outstanding and undrawn available debt, does not exceed six times adjusted EBITDA.
    • Expanded loans can now range from a minimum of $10 million to the lesser of $300 million (up from $200 million) or an amount that, when added to outstanding and undrawn debt, does not exceed six times adjusted EBITDA.
  • Increased the term of each loan option to five years (previously four years).
  • Extended the repayment period for all loans by delaying principal payments for two years (previously one year).
  • Raised the Reserve Bank’s participation to 95% for all loans. (Previously, the Reserve Bank purchased 85% of priority loans in the program.)

To find more detailed descriptions for each of the three loan facilities under the Main Street Lending Program, please refer to the corresponding term sheet issued by the Federal Reserve:

Background

In April 2020, Federal Reserve announced a series of programs to provide up to $2.3 trillion in loans to households, businesses, and state and local governments struggling to deal with the economic impact of the novel coronavirus health crisis. Among those programs was the Main Street Lending Program. The Main Street Program supports loans to U.S. companies with less than $2.5 billion in 2019 revenue and that were in good financial standings prior to the massive disruptions caused by the COVID-19 pandemic.

Ideally, the Main Street Program will fill a need for funding for companies that are too large for the Paycheck Protection Program (PPP), which provides forgivable loans to companies that have 500 or fewer employees. The Main Street Program is bolstered by $75 billion in equity provided by the Treasury through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Note that business owners who have received PPP loans may also apply for a Main Street loan, as long as they meet the requirements to do so.

How can I apply for a Main Street Loan?

Potential borrowers can request a Main Street loan application at a federally insured institution (including banks, savings associations, and credit unions), which in turn will apply its own underwriting criteria. In addition, the Federal Reserve released several application forms and agreements that borrowers must complete and submit with the primary loan application. The documents include borrower certifications and covenants.

The Federal Reserve cautions that “eligible borrowers should contact an eligible lender for more information on whether the eligible lender plans to participate in the program and to request more information on the application process.” The Federal Reserve expects the Main Street Program to open for lender registration soon, after which participating banks will begin offering loans.

For more detailed and most current information, please visit the Federal Reserve’s site dedicated to the Main Street Lending Program.

Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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