When the Coronavirus Aid, Relief, and Economic Security Act (more commonly referred to as the CARES Act) was signed into law in late March, it contained a number of lending initiatives and loan programs aimed at helping small businesses navigate the financial challenges and economic slowdown ushered in by the onset of the COVID-19 pandemic—and one of those loan programs was the Main Street Lending Program.
But although the Main Street Lending Program (also known as the MSLP) was announced back in March, the actual launch of the program was put on hold while the Federal Reserve and the Treasury Department ironed out the details of the program.
The launch was put on hold—until now.
After months in limbo, the Main Street Lending Program officially launched on June 15, allowing lenders to register for the program and immediately start granting loans to small and mid-sized businesses in need of additional funding to weather the financial hardships they’re facing as coronavirus continues to impact the economy.
But what details, exactly, did the Federal Reserve and the Treasury spend months ironing out? What are the rules and regulations for the MSLP? And if you need to secure a loan through the Main Street Lending Program, what are the steps you should take to get the funds you need to keep your business moving forward?
What the Main Street Lending Program is—and what types of businesses may qualify
Before we jump into the launch of the Main Street Lending Program, let’s quickly review what the MSLP is—and what types of businesses may qualify for loans through the program.
The Main Street Lending Program (MSLP) is a lending initiative that is overseeing $600 billion in loans for eligible small and medium-sized businesses. The funds are split between three different credit facilities—the Main Street New Loan Facility (MSNLF) and the Main Street Priority Loan Facility (MSPLF), which both issue new business loans, and the Main Street Expanded Loan Facility (MSELF), which expands existing loans. Depending on the type of loan and credit facility they’re applying for, businesses may be eligible for loans ranging from $250,000 to $35 million.
Under the MSLP, the Federal Reserve has set up a special purpose vehicle (SPV) that will purchase participations in loans made by eligible lenders. Under the program, the SPV will purchase 95 percent of loan participations (up to $600 billion), while lenders will retain the other 5 percent. Currently, the SPV is authorized to purchase loan participations through September 30 (although the Federal Reserve and the Treasury reserves the right to extend the authorized purchase period).
In order to qualify for a loan through the MSLP, businesses must:
- Have been established prior to March 13, 2020
- Have 15,000 or fewer employees, OR
- Have an annual revenue of $5 billion or less in 2019;
- Have been created or organized in the United States (or under the laws of the United States) with a majority of its employees and significant operations based in the US
- Have not not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act)
- Have not received any other loans through the Main Street Lending Program or participated in the Primary Market Corporate Credit Facility
Terms of MSLP program loans
All loans issued under the MSLP, regardless of the credit facility:
- Mature in four years;
- Have an adjustable interest rate of LIBOR (one or three month) plus 3 percent;
- Offer principal and interest payment deferral for one year; and
- Have no prepayment penalties.
The remaining loan terms, including minimum loan size, maximum loan size, and amortization schedules, vary based on the issuing credit facility (for more details on MSLP program term sheets, be sure to review the Main Street Lending Program FAQs).
The benefits of the Main Street Lending Program
One of the main reasons the Main Street Lending Program was included in the CARES Act was to offer a lending solution for mid-sized businesses. Unlike the Paycheck Protection Program (PPP) or Economic Injury Disaster Loans (EIDL), which are overseen by the Small Business Administration (SBA) and reserved for small companies, businesses with higher employee headcounts (up to 15,000) can qualify for Main Street loans.
MSLP loans also provide an alternative for smaller businesses who don’t meet the payroll criteria for PPP loans and/or need funds to support their business in ways that fall outside of the PPP’s approved payroll and non-payroll expenses.
What the MSLP is not
It’s important to note that, unlike PPP loans, loans through the Main Street Lending Program are not forgivable. Main Street loans function like regular business loans, and will need to be paid back according to the credit facility’s loan terms.
Why is the Main Street Lending Program launching now?
One of the biggest questions business owners have about the MSLP is “if it was announced in March, why is it just being launched now, in June—three months later?”
The Main Street Lending Program marks the first time the Fed will actually be purchasing loans directly from lenders. In other words, this loan program is, in many ways, uncharted territory—and the Fed needed time to create the legal and operational structure under which the program will function.
In order to participate in any of the MSLP credit facilities, lenders will need to complete and submit a variety of legal forms, agreements, and other documents. These include:
- Lender Registration forms, including the Lender Registration Certification and Covenants (signed by the lender’s CEO and CFO) and Lender Wire Instructions;
- Loan Participation Agreement Standard Terms and Conditions, including the Loan Participation Agreement Standard T&C and the Co-Lender Agreement Standard T&C;
- Documentation that needs to be submitted at the time a loan participation is sold to the SPV, including the Loan Participation Agreement Transaction Specific Terms, Servicing Agreement, Assignment-in-Blank (which also must be signed by the eligible borrower), and Co-Lender Agreement Transaction Specific Terms;
- Facility Transaction Specific Lender Certifications and Covenants, which must be signed by an authorized officer of the eligible lender (and vary by credit facility); and
- Facility Borrower Certifications and Covenants, which must be signed by the CEO or CFO of the eligible lender (and vary by credit facility)
The Fed also released a loan document checklist in the most recent MSLP FAQs (available for download on the Federal Reserve Bank of Boston’s website) that outlines “items that must be included in the loan documentation for eligible loans originated by eligible lenders to eligible borrowers.”
How to apply for a loan through the MSLP
If you want to secure a loan through the Main Street program, you’ll need to apply through with an approved lender. MSLP loans are distributed through a network of eligible lenders and lending facilities, which include US insured depository institutions (including credit unions, banks, and other approved financial institutions), US bank holding companies, US branches or agencies of a foreign bank, and US savings and loan holding companies.
The application process for MSLP loans may vary by lender, so for specific questions about the application process, get in touch with an eligible lender in your area.