Still looking for funding to keep your business afloat during the coronavirus pandemic? The Main Street Lending Program may be a solution.
On April 9, 2020, the Federal Reserve announced the creation of the Main Street Lending Program “to support lending to small and medium-sized businesses that were in good financial standing before the onset of the COVID-19 pandemic.” There’s $600 billion in available funding.
Before we dive into the details, it’s important to note the program isn’t operational. You can’t apply for this program at this time because the Fed is working on the program’s infrastructure. Once the Fed releases more information and allows eligible lenders to accept applications, we’ll update this post.
What’s the Main Street Lending Program?
The program is split into two loan types – the Main Street New Loan Facility (New Loan) and the Main Street Expanded Loan Facility (Expanded Loan). The loans are similar in terms of eligibility, uses, loan conditions, etc. But, you can only participate in one loan type – the New Loan or the Expanded Loan.
New Loans are loans made to borrowers on or after April 8, 2020. They’re unsecured loans.
Expanded Loans are loans made to borrowers before April 8, 2020, and are used to increase an existing loan. They may be unsecured or secured loans.
Who is eligible for these loan programs?
Businesses can apply for a loan if they have less than 10,000 employees or have 2019 revenues of $2.5 billion or less. They have to be created or organized in the U.S. or under the laws of the U.S. with a majority of their operations and employees based in the U.S.
What are the loan details?
Both loans have the following features:
- Four-year maturity
- Amortization of principal and interest is deferred for one year
- An adjustable interest rate of Secured Overnight Financing Rate (SOFR) plus 250-400 basis points
- Lenders will set this rate.
- No prepayment penalties
How much funding will I receive?
The smallest loan amount is $1 million. If you apply for an Expanded Loan, your maximum loan amount will be the lesser of:
- $150 million
- 30% of your existing outstanding and committed, but undrawn bank debt
- An amount that doesn’t exceed six times your 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA) plus your existing debt
If you apply for a New Loan, your maximum loan amount will be the lesser of:
- $25 million
- An amount that doesn’t exceed four times your 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA) plus your existing debt
When can I apply?
We don’t know. The Fed hasn’t announced when companies can begin applying or what’s included in the application process. But, we wanted to make you aware of this option.
Am I required to use the funds for certain purposes?
To a degree, yes. You have to certify that you’ll use the loan to maintain your payroll and retain employees during the loan term. You’ll also need to state that you won’t use the funds for any of the following:
- Repay other loan balances or repay other debt unless you’ve paid this loan in full first
- Cancel or reduce any outstanding lines of credit
When applying for a loan, you’ll have to attest that you need financing due to impacts of COVID-19, you’ll make reasonable efforts to maintain your payroll, you meet the EBITDA leverage condition, you’re eligible to participate in the program, and you’ll follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs in the CARES Act.
Can I get a Main Street loan if I’ve received a loan through the paycheck protection program?
Yes! If you’ve received a paycheck protection loan, you can still apply for the Main Street Lending Program. At this time, there aren’t limitations that should prevent you from applying or receiving a Main Street Lending Program loan. You just have to pick one loan within the program.
This is a basic overview of the Main Street Lending Program. We expect the Fed to release more guidance in the coming weeks. We’ll update this blog post with the information you need to apply for this funding.
Have questions about the Main Street Lending Program? Let’s talk!