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Main Street Lending Program Update

AAFCPAs would like to make clients aware that on June 8th, 2020, the Federal Reserve announced changes to its Main Street Lending Program to “allow more small and medium-sized businesses to be able to receive support.”

The changes include:

  • Lowering the minimum loan size for certain loans to $250,000 from $500,000;
  • Increasing the maximum loan size for all facilities, variable depending on the facility;
  • Increasing the term of each loan option to five years, from four years;
  • Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
  • Raising the Reserve Bank’s participation to 95% for all loans.

Program Overview

AAFCPAs has provided the following overview of the Main Street Lending Program, including updates from the June 8, 2020 guidance, to make clients aware of key considerations when evaluating this funding option. The Main Street Loan Program will be accepting applications until September 30, 2020, unless subsequently extended. We advise clients to consult with your AAFCPAs Partner and reference the most recent guidance and term sheets when evaluating whether this loan program is right for your business.

What is the Main Street Lending Program?

The Main Street Lending Program was established with the approval of the Treasury Secretary and with $75 billion in equity provided, thus far, by the Treasury Department from the CARES Act.

What types of loans are available?

The Main Street Lending Program will operate three loan facilities: The Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF).

Who can borrow?

  1. The business must have been established prior to March 13, 2020;
  2. The business must not be a business ineligible for an SBA Loan as listed in 13 CFR 120.110(b)-(j), (m)-(s) (Nonprofits are not currently eligible to borrow under this program.);
  3. The business must have no more than 15,000 employees or less than $5 billion of 2019 annual revenue (There is no minimum number of employees, nor is the business required to meet both of these requirements.);
  4. The business must be created or organized in the U.S., have greater than 50% of the business’ assets located in the U.S., and a majority of employees based in the U.S.;
  5. The business may only participate in one of the three Main Street Loan Programs listed above;
  6. The business must not have received specific support pursuant to Section 4003(b)(1)-(3) of the CARES Act (this support was earmarked for cargo air carriers and businesses critical to national security.); and
  7. The business must be able to make all the certifications and covenants required under the program in which it applies.

The chart below outlines additional details on the June 8, 2020 changes:

Main Street Lending Program Loan Options

New Loans

Priority Loans

Expanded Loans

Term 5 years
(previously 4 years)
Minimum Loan Size $250,000
(previously $500,000)
$10M
Maximum Loan Size The lesser of $35M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA
(previously $25M)
The lesser of $50M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA
(previously $25M)
The lesser of $300M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA
(previously $200M)
Risk Retention 5% 5%
(previously 15%)
5%
Principal Repayment

Principal deferred for two years, years 3-5: 15%, 15%, 70%

(previously principal deferred for one year and 33.33% repayment due in years 2-4)

Principal deferred for two years, years 3-5: 15%, 15%, 70%

(previously principal deferred for one year and 15%, 15%, 70% repayment due in years 2, 3, and 4, respectively)

Interest Payments Deferred for one year
Rate LIBOR + 3%

Who does the Main Street Lending Program benefit?

The Main Street Lending Program is designed to fill the gap of COVID-19 aid for small and mid-sized businesses that were ineligible for the Paycheck Protection Program (PPP) due to the employee threshold of 500, or businesses assisted by the PPP who need access to additional funds.

Who is the Main Street Lending Program not a fit for?

This Program is not a fit for businesses looking for loan forgiveness, as Main Street Loans have no forgiveness provision. Additionally, Main Street Loans may not offer the most favorable interest rates or maturity periods in relation to other funding options, including PPP, Economic Injury Disaster Loans (EIDL), and traditional bank loans. Further, businesses who were not in sound financial condition prior to the COVID-19 pandemic are ineligible.

While non-profit organizations are not currently eligible under the Main Street Lending Program, the Federal Reserve announced on June 8, 2020, that it is working to establish loan options for non-profit organizations.

How can a borrower apply for a Main Street Program Loan?

Prospective borrowers can apply by contacting an Eligible Lender, as defined in the FAQs.

Is collateral required for Main Street loans?

Unlike PPP loans, collateral may be required for Main Street Loans. Borrowers that have other secured debt may be required to secure Main Street Loans so that these loans are not subordinate to the borrower’s other secured debt.

Are there any requirements for borrowers to maintain payroll and retain employees?

Yes, per the FAQs, borrowers should make “commercially reasonable efforts and undertake good-faith efforts to maintain payroll and retain employees during the term of the loan.”  Had the borrower already laid-off or furloughed workers as a result of the COVID-19 pandemic, they are still eligible to apply for Main Street Loans.

What do we advise?

AAFCPAs advises clients to consult with your AAFCPAs Partner to discuss your unique facts and circumstances in order to determine which financing is right for you.

As always, AAFCPAs will continue to monitor COVID-19 related developments and keep you informed as significant changes occur or provisions become clarified. If you have any questions please contact: Christopher Consoletti, Esq. at 774.512.4180, cconsoletti@nullaafcpa.com; or your AAFCPAs Partner.

About the Author

Chris Consoletti
Chris, in conjunction with AAFCPAs’ multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for trusts & estates, corporations and partnerships. Chris provides clients with corporate law analysis and recommendations related to entity formation, management and board structure, executive compensation, limited liability protection, and the applicable laws of relevant states and jurisdictions. He evaluates and assesses opportunities and risks associated with complicated tax challenges or controversies.