'Main Street' Loan Program to Support Small to Medium-Sized Businesses

On April 9, 2020, the Federal Reserve announced it would be taking additional steps to support the US economy by providing up to $2.3 trillion in loans, including through the creation of a Main Street Lending Program. This program will support main street businesses by providing financing to lenders that make direct loans to these small to medium-sized companies.

As part of the response to the COVID-19 emergency, this lending facility is meant to support those SMBs who were in good financial standing prior to the pandemic, and who might not have access to broader capital markets or who don’t qualify for the SBA’s Paycheck Protection Program (PPP).

Treasury Secretary Steven Mnuchin says that 40,000 mid-sized companies who employ approximately 35 million Americans stand to benefit from the Main Street Lending Program.

According to Vice Chairman Randal Quarles, the Fed’s chief banking supervisor, “officials continue to work out operational details” and the facility should be available soon.

“We are putting together the mechanisms for that credit to be distributed through the banks,” Quarles said. “That’s probably two to three weeks away.”

Eligibility

Eligible borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. The business must be created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S.

The announcement did not provide guidance on how businesses must count their employees or whether affiliation rules may apply to the eligibility requirements listed above.

Loan Amounts

To qualify, loans must have originated on or after April 8, 2020. Loans will be available at a minimum of $1 million up to a certain maximum amount, which is the lesser of:

1. 25 million, or
   
   
2. an amount that, when added to the applicant’s existing outstanding and committed but undrawn debt, does not exceed four times 2019 EBITDA.

For upsizing existing loans (those which originated before April 8, 2020), the maximum total amount is equal to the lesser of:

1. $150 million;
   
   
2. 30 percent of the applicant’s existing outstanding and committed but undrawn bank debt; and
   
   
3. an amount that, when added to the applicant’s existing outstanding and committed but undrawn debt, does not exceed six times 2019 EBITDA.

A few important things to note:

1. These leverage conditions could prevent highly-leveraged businesses from participating in the program.
   
   
2. Small businesses participating in the SBA’s Paycheck Protection Program are also allowed to take advantage of the Main Street Program. The two programs are not mutually exclusive for those businesses that would qualify for both.

Additional Requirements

Below are the additional requirements that apply to Main Street Program loans:

• Proceeds from the loan cannot be used to repay or refinance pre-existing loans or lines of credit of the borrower. 
  
  
• The borrower may not repay any debt of equal or lower priority while the Main Street loan remains outstanding. The only exception is mandatory principal payments. 
  
  
• The lender must attest that it will not cancel or reduce any existing lines of credit to the borrower, and the borrower must attest it will not seek to cancel or reduce any of its outstanding lines of credit with any lender (including the participating lender). 
  
  
• The borrower must attest that it requires financing due to the pandemic, and that it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan. 
  
  
• The borrower must attest that it meets the EBITDA leverage condition stated above. 
  
  
• The borrower must attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
   
• Eligible lenders and borrowers will be required to certify they are eligible to participate, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act. 

Application Fees and Process

Applicants must pay an origination fee of 100 basis points of the principal amount of the loan to be sold to the Main Street Program. Participating lenders must also pay a facility fee of 100 basis points of the principal amount, and lenders are authorized to charge this fee to the applicant.

Unless extended by the Treasury and Federal Reserve, the Main Street Program will cease participations on September 30, 2020.

Further details on the Main Street Program have not yet been released. For assistance and further information, please contact our office.

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