April 10, 2020

The Fed’s $2.3 Trillion Main Street Lending Program

What You Should Know

Tax & Business

Responding to the COVID-19 outbreak, on April 9 the Federal Reserve Board unveiled details about the previously announced Main Street Lending Program designed to get 4-year loans with deferred principal and interest payments to small and mid-sized businesses with up to 10,000 employees or less than $2.5 billion in revenue.

While the Small Business Administration’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program were aimed at smaller businesses, the Main Street Lending Program is also open to larger firms needing assistance. Importantly, you can apply for a Main Street Lending Program loan even if you’ve also applied for a loan under the PPP, but you cannot apply if you participate in other programs such as the Main Street Expanded Loan Facility (MSELF) or the Primary Market Corporate Credit Facility.

Eligibility Requirements

U.S. business with up to 10,000 employees or less than $2.5 billion in revenue in 2019.
In good financial standing prior to the COVID-19 outbreak.
Must make reasonable efforts to maintain payroll and retain workers.
Must follow all applicable restrictions that apply to direct loan programs under the CARES Act, i.e., compensation, stock repurchase, and dividend repurchase restrictions.

About the 4-Year Loans

Minimum size is $1 million.
Maximum size is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA).
Interest rate=Adjustable rate of SOFR + 250-400 basis points.
Amortization of principal and interest: Deferred for one year.
Loans may be prepaid with no penalty.
Fee for loan origination and servicing is 100 basis points or the principal amount of the eligible loan, according to the press release.

Where, How and When Can You Apply?

U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies are eligible to be lenders.
No details are available yet about when you can apply or the application process, which is likely to vary from lender to lender. Applications could be through a portal or, in the case of smaller banks, an application form with supporting documentation.
It is smart to begin preparing now by gathering information about your 2019 IRS payroll filings, all payroll records supporting compensation figures and total workforce numbers. In short, pull together any information that helps you make the case for why the loan is needed.

In the press release announcing program details, The Federal Reserve and the Treasury stated that they recognize businesses have widely varying financing needs, and they are seeking input from lenders, borrowers, and other stakeholders up until April 16 “to make sure the program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds.”

Although as of April 10, 2020, no applications have been taken for these loans, we recommend business owners begin conversations now with their current lender or financial institution about this loan program.

If you have any questions, contact your Marcum professional or email [email protected].