COVID-19 Federal Main Street Lending: Expanded Eligibility and Loan Options

Additional information has been added to this publication.

The Main Street Lending Program was established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to assist small and medium-sized businesses who were in a sound financial position prior to the COVID-19 pandemic and are now facing financial strain due to the disruption of economic activity. There are three different federal assistance options within the Main Street Lending Program: (1) the Main Street New Loan Facility, (2) the Main Street Priority Loan Facility and (3) the Main Street Expanded Loan Facility. An eligible borrower may only participate in one loan facility within the Program. On April 30, 2020, the Federal Reserve Board expanded the scope and eligibility for the Program.

While many businesses have focused on the Paycheck Protection Program’s loan offerings due to its attractive loan forgiveness feature, many businesses are ineligible or have been otherwise unable to receive PPP loan funds. The Main Street Lending options could be an alternative for companies still interested in obtaining a loan.

I. Expansion and Recent Changes to Main Street Lending Program

The expanded Program effectively makes it more accessible to smaller businesses by lowering the minimum loan amount, and also permits larger businesses to participate. When first implemented, the smallest Main Street loan permitted was $1 million. Now, the terms for both Main Street New Loans and Main Street Priority Loans permit a minimum loan of $500,000. Initially, eligible borrowers were limited to up to 10,000 employees and $2.5 billion in annual revenue. Now, businesses with up to 15,000 employees or $5 billion in annual revenue may participate in the Program.

The final recent change involves the Main Street Priority Loans, a new loan option that increases the percentage of risk that a lender retains from 5% to 15%. Previously, the SPV purchased 95% of participations in eligible loans from eligible lenders of all three types of loans. Unlike the other Main Street loan options, borrowers under the Main Street Priority Loan Program may refinance existing debt at the time of origination.

II. Summary of Expanded Loan Types

The Main Street New Loan has a minimum loan amount of $500,000, and a maximum loan amount calculated as the lesser of $25 million or 4 times the business’s 2019 adjusted EBITDA. Lenders of a Main Street New Loan retain a 5% share of the loan. Payments on a New Loan are deferred for one year, and must be paid back at a rate of 33.33% for years two, three, and four.

Like a New Loan, a Main Street Priority Loan has a minimum loan amount of $500,000. However, the maximum loan amount for Main Street Priority Loans is the lesser of $25 million or 6 times 2019 adjusted EBITDA. Lenders of a Main Street Priority Loan retain a 15% share. Notably, as mentioned above, borrowers under the Main Street Priority Loan Program may refinance existing debt at the time of origination.

The Main Street Expanded Loans have a higher minimum loan amount. The loans must be of at least $10 million and are capped at the lesser of (a) $200 million, (b) $35% of outstanding and undrawn available debt, or (c) 6 times 2019 earnings before interest, taxes, depreciation, and amortization. Similar to the Main Street New Loan, the risk retention is 5%.

All three types of loans under the Program have a four year term and deferred payment for one year. While Main Street New Loans are paid back at 33.33% for years two, three and four, borrowers of Main Street Priority and Expanded Loans repay 15% of the loan in years two and three and the remaining 70% paid back in year four. The interest rate for each loan is adjustable, set at either the LIBOR 1-month or 3-month rate, plus 3% (300 basis points).

III. Next Steps for Interested Businesses

Businesses that are ineligible for a Paycheck Protection loan but require financial support should consider these low interest Main Street loans. Although the Main Street Lending Program is not yet operational, we expect details regarding application procedures soon.

For additional information on each loan program, visit the Federal Reserve’s announcement here. 

If you have any questions regarding the availability of these loans, or how to begin preparing to apply for them, please contact an author of this publication:

• Taylor A. Gast | 517.371.8238 | tgast@fosterswift.com
  

Foster Swift's lawyers are ready to help with these urgent and novel questions related to the coronavirus pandemic. If you have questions, we encourage you to contact your Foster Swift attorney or one of our Coronavirus Task Force coordinators as listed below:

• Mid-Michigan & Southeast Michigan - Matthew Fedor | 248.785.4734 | mfedor@fosterswift.com
• West & Northern Michigan - Laura Genovich |616.726.2238 | lgenovich@fosterswift.com

While the information in this article is accurate at time of publication, the laws and regulations surrounding COVID-19 are constantly evolving. Please consult your attorney or advisor to make sure you have the most up to date information before taking action.