Main Street Lending Program Q&AApril 24, 2020 – Client Alert
In the next installment of our multi-part series about the benefits for businesses under the “CARES” Act, we’ve put together an introductory Q&A about the “Main Street Lending Program”—a government program separate from the Paycheck Protection Program that is currently being created to distribute over $600 billion in economic relief to small and mid-size businesses. The program is still in the process of being implemented, so these loans are not yet available. Correspondingly, the below information is still subject to change, but please feel free to reach out with further questions about the Main Street Lending Program or for assistance with the application process when it opens up, and we’ll be happy to assist.
What is the Main Street Lending Program?
The Main Street Lending Program is a loan program established through the Federal Reserve Board that will allow small and mid-size businesses to either obtain new loans under the Main Street New Loan Facility or to upsize their existing loans under the Main Street Expanded Loan Facility. Businesses may seek these loans as a single source of funding or as additional funding to other lending programs, including loans under the Paycheck Protection Program.
Who’s eligible to receive loans under the Main Street Lending Program?
The program generally applies to US businesses with up to either 10,000 employees or $2.5 billion in 2019 annual revenue. Applicants must have been in good financial standing prior to the COVID-19 pandemic to obtain the loan; however, it has not yet been clarified what that means. Further, while the details of this program are still being finalized, it is possible that many companies prohibited from receiving a Paycheck Protection Program loan due to the Small Business Administration’s affiliate rules may be able to participate in this program.
How large are the loans?
Each of the two types of loans under the Main Street Lending Program has a different cap.
The Main Street New Loan Facility allows businesses to borrow up to four times their 2019 EBITDA, with a minimum loan of $1 million and a maximum loan of $25 million. This is subject to reductions for outstanding and committed but unused debt.
The Main Street Expanded Loan Facility allows businesses to borrow the lesser of (i) 30% of the business’s outstanding and committed but unused bank debt, or (ii) an amount that, when added to its outstanding and committed but unused debt, does not exceed six times their 2019 EBITDA, in each case with a minimum loan of $1 million and maximum loan of $125 million.
What are the terms on the loans?
A loan under the Main Street Lending Program has a four year maturity and an interest rate of the Secured Overnight Financing Rate (SOFR) plus 250-400 basis points, which as of April 24, 2020, would be approximately 2.51% to 4.51%. Importantly, while these loans are not potentially forgivable like the Paycheck Protection Program, repayment of principal and interest is deferred for one year.
Are there collateral and fee requirements?
Subject to additional terms and conditions, the Main Street New Loan Facility is generally unsecured and the Main Street Expanded Loan Facility would be secured with any collateral pledged to the existing facility on a pro rata basis.
Each of these loans will have origination fees equal to 100 basis points of the principal amount of the loan. Borrowers will also pay the lender a servicing fee of 100 basis points, and lenders may require borrowers to pay a facility fee of 100 basis points.
How can I spend the money from the loan?
Borrowers must make reasonable efforts to maintain payroll and retain employees during the term of the loan; however, there is no clear retention threshold requirement at this time.
Are there any restrictions on how I can spend the money?
Loans cannot be used to repay other loan balances or other debt of equal or lower priority (except for mandatory principal payments), unless the borrower has repaid the loan under this program in full.
Until one year after the loan is no longer outstanding, borrowers must also follow certain compensation, stock repurchase and capital distribution restrictions under the CARES Act.
Where and when can I apply?
You can apply through any eligible bank, bank holding company, or savings and loan holding company, with applications expected to be available in the next few weeks through September 30, 2020.