Since mid-March, COVID-19 has caused serious economic hardship for businesses across the country. While some businesses have been able to operate at a diminished capacity, many were forced to cease operations altogether. And even as stay-at-home orders are lifted and the economy is starting to re-open, it’s not business as usual—and many companies are dealing with continuing financial hardships.
The Main Street Lending Program is the latest lending initiative aimed at helping businesses navigate the economic uncertainty of the COVID-19 pandemic. But what is the Main Street Lending Program? What are the eligibility requirements and loan terms? And how can businesses apply for a loan through the Main Street Lending Program and get the funding they need to keep moving forward?
What is the Main Street Lending Program—and how does it compare to other COVID-19 loan programs?
Launched as a result of the Coronavirus Aid, Relief, and Economic Security Act (more commonly referred to as the CARES Act), the Main Street Lending Program (MSLP) is a coronavirus aid lending initiative that will oversee $600 billion in loans for eligible small and medium-sized businesses, split between three different credit facilities—the Main Street New Loan Facility (MSNLF) and the Main Street Priority Loan Facility (MSPLF), which issue new loans, and the Main Street Expanded Loan Facility (MSELF), which increases existing loans. Depending on the credit facility, eligible businesses can apply for loans ranging from $500,000 to $25 million.
Unlike the Paycheck Protection Program (PPP) or the Economic Injury Disaster Relief Program (EIDL)—which are both overseen by the Small Business Administration (SBA) and tailored for small businesses—the MSLP was established by the Federal Reserve Board as a lending option for larger companies. The MSLP is also an option for small businesses that don’t meet the payroll requirements for PPP loans and/or need financial support to cover business expenses other than payroll costs. (Just keep in mind that, unlike PPP loans, Main Street loans are not forgivable).
Under the MSLP, the Federal Reserve has set up a special purpose vehicle (SPV) that will purchase participations in loans made by eligible lenders. The SPV will purchase 95 percent of participations in eligible loans, with lenders retaining the other 5 percent. To date, the SPV is authorized to purchase loan participations until September 30, 2020.
Eligibility for the Main Street Lending Program
In order to qualify for the Main Street Lending Program loan, businesses must meet the following criteria:
- The business was established prior to March 13, 2020
- The business has 15,000 or fewer employees, OR
- The business had an annual revenue of $5 billion or less in 2019;
- The business is not q
- The business was 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 US
- The business has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act)
It’s important to note that businesses are only eligible for one loan through the Main Street Program; so, for example, if you apply and are approved for a loan through the MSPLF, you’re not also eligible for a loan through the MSELF. It’s also important to note that accepting a Main Street Loan also makes your business ineligible to participate in the Primary Market Corporate Credit Facility—but if you have received a loan through the Paycheck Protection Program, it does not affect your eligibility for a loan under the MSLP.
What are the terms of MSLP loans?
All loans issued under the MSLP have a four-year maturity, an adjustable interest rate of LIBOR (one or three month) plus 3 percent, principal and interest payment deferral for one year, and offer prepayment without penalty. Additional loan terms differ based on the issuing credit facility and are as follows:
- principal amortization of one-third at the end of the second year, one-third at the end of the third year, and one-third at maturity at the end of the fourth year
- Minimum loan amount: $500,000
- Maximum loan size: the lesser of $25 million OR an amount that, when added to the eligible borrower’s existing outstanding and undrawn available debt, does not exceed four times the borrower’s adjusted 2019 EBITDA (earnings before interest, taxes, depreciation, and amortization)
- principal amortization of 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at maturity at the end of the fourth year
- Minimum loan amount: $500,000
- Maximum loan size: the lesser of $25 million OR an amount that, when added to the eligible borrower’s existing outstanding and undrawn available debt, does not exceed six times the borrower’s adjusted 2019 EBITDA
- Principal amortization of 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at maturity at the end of the fourth year
- Minimum loan amount: $10 million
- Maximum loan size: the lesser of (a) $200 million, (b) 35% of the borrower’s existing outstanding and undrawn debt, OR (c) an amount that, when added to the eligible borrower’s existing outstanding and undrawn available debt, doesn’t exceed six times the borrower’s adjusted 2019 EBITDA earnings
How can you apply for a Main Street Loan?
MSLP loans are distributed through a network of eligible lenders and lending facilities, including U.S. insured depository institutions (including banks, credit unions, and other financial institutions), U.S. bank holding companies, U.S. branches or agencies of a foreign bank, and U.S. savings and loan holding companies. Once the Main Street Lending Program is fully operational (which is expected to be sometime in early June), businesses can apply for an MSLP loan directly through a qualified lender.
Individual lenders will be responsible for evaluating a business’ financial condition, creditworthiness, and whether it meets the minimum conditions outlined in the Program’s term sheet. For additional information on the application process, get in touch with your lender.
For more information, visit the Federal Reserve
While the information featured in this article is the most up-to-date at the time of writing, the Main Street Lending Program has yet to officially launch—and, as such, details may change leading up to the official launch date.
For the most up-additional information on the Main Street Lending Program, be sure to visit the Federal Reserve website and download the MSLP Frequently Asked Questions (FAQ).