By Nilesh Patel & Brian Sullivan
Updated: July 8, 2020
On June 8, the Federal Reserve announced several changes to the Main Street Lending Program to allow more small to medium-sized businesses to be eligible for financial assistance. Additionally, the Federal Reserve began accepting applications from lenders to participate in this program.
The Main Street Lending Program has three loan facilities that allow borrowers to secure financing. Interested businesses will work with an eligible lender to determine if they meet the program requirements, as well as the lender’s own underwriting standards. The lender will then determine whether a business is approved for a loan. The Federal Reserve will participate in the lending by purchasing a 95% interest in the loan through a Special Purpose Vehicle (SPV). The lender retains 5% of the loan. Additionally, no part of the Main Street Lending Program is forgivable.
The dynamics of each of the facilities under the Main Street Lending Program are noted below:
New Loan Facility (MSNLF)
- Loan Size: $250,000 – $35 million
- Loan Term: 5 years
- Interest Rate: Adjustable rate of LIBOR (1 or 3 month) + 300 basis points
- Principal payments: Principal is deferred for 2 years
- Interest payments: Interest is deferred for 1 year
- Maximum loan: 1) $35 million or 2) An amount that, when added to the eligible borrower’s existing outstanding and undrawn available debt, does not exceed four times the eligible borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
- Collateral Requirements: Lenders discretion on what collateral may be required
- Eligible Businesses: 15,000 employees or fewer, or 2019 revenues of $5 billion or less
- Principal Payments: 15% in year 3; 15% in year 4; a balloon payment of 70% at maturity in year 5
- Prepayment: Allowed, without penalty
- Loan Fees: Origination and transaction fees may apply; varies depending on borrower’s loan request
- Loan Refinancing: Not available under MSNLF
- Loan Uses: Loan proceeds can be used for operational and payroll costs; however, the loan cannot be used to make accelerated payments on other existing loans. Although, loan proceeds can be used for scheduled and due payments on existing loans.
Priority Loan Facility (MSPLF)
- Loan Size: $250,000 – $50 million
- Loan Term: 5 years
- Interest Rate: Adjustable rate of LIBOR (1 or 3 month) + 300 basis points
- Principal payments: Principal is deferred for 2 years
- Interest payments: Interest is deferred for 1 year
- Maximum loan: 1) $50 million or 2) An amount that, when added to the eligible borrower’s existing outstanding and undrawn available debt, does not exceed six times the eligible borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
- Collateral Requirements: Lender’s discretion if no exiting loan; required if borrower has an existing loan
- Eligible Businesses: 15,000 employees or fewer, or 2019 revenues of $5 billion or less
- Principal Payments: 15% in year 3; 15% in year 4; a balloon payment of 70% at maturity in year 5
- Prepayment: Allowed, without penalty
- Loan Fees: Origination and transaction fees may apply; fees vary depending on borrower’s loan request
- Loan Refinancing: Available under MSPLF
- Loan Uses: Loan proceeds can be used for operational and payroll costs; however, the loan cannot be used to make accelerated payments on other existing loans. Although, loan proceeds can be used for scheduled and due payments on existing loans.
Expanded Loan Facility (MSELF)
- Loan Size: $10 million – $300 million
- Loan Term: 5 years
- Interest Rate: Adjustable rate of LIBOR (1 or 3 month) + 300 basis points
- Principal payments: Principal is deferred for 2 years
- Interest payments: Interest is deferred for 1 year
- Maximum loan: 1) $300 million or 2) An amount that, when added to the eligible borrower’s existing outstanding and undrawn available debt, does not exceed six times the eligible borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization on (“EBITDA”)
- Collateral Requirements: Lender’s discretion on what collateral may be required
- Eligible Businesses: 15,000 employees or fewer, or 2019 revenues of $5 billion or less
- Principal Payments: 15% in year 3; 15% in year 4; a balloon payment of 70% at maturity in year 5
- Prepayment: Allowed, without penalty
- Loan Fees: Origination and transaction fees may apply; fees vary depending on borrower’s loan request
- Refinancing: Not available under MSELF
- Loan Uses: Loan proceeds can be used for operational and payroll costs; however, the loan cannot be used to make accelerated payments on other existing loans. Although, loan proceeds can be used for scheduled and due payments on existing loans.
A detailed Frequently Asked Questions (FAQ) page and Terms sheet regarding each of these programs can be found here.
The Federal Reserve has published a list of lenders participating in the program, this list is will continue to update as more lenders begin to participate. If you think the Main Street Lending Program could be helpful to your business, we urge you to contact a lender to determine your eligibility and apply.
As always, THLA attorneys are happy to assist with answering any questions regarding the Main Street Lending Program.