A Closer Look at the Main Street Loan Program
UPDATED as of June 11, 2020
The Federal Reserve Board has implemented a special Main Street Loan Program for the purpose of providing further financial assistance to U.S. businesses adversely impacted by the COVID-19 pandemic. These loans may be utilized in addition to PPP loans.
- S. for-profit entities established prior to March 13, 2020, with significant operations in, and a majority of employees based in, U.S.
- In 2019, had no more than 15,000 employees or had no more than $5 billion in revenue.
- Except for SBA size limits (replaced with above), business is otherwise eligible for SBA loans. Entities eligible for a PPP Loan would meet these requirements.
- Did not receive certain special CARES Act assistance. PPP loan recipients are
- Must have been in sound financial condition prior to the onset of the pandemic.
Lenders originate the Main Street loans and the Federal Reserve Board (FRB), through a special purpose entity, purchases a participation in the loan. The Lender retains part of the loan and services the loan. There are three types of Main Street loans:
|Loan Type||Loan Amount||FRB Participation|
|New Loan Facilities (NLFs)||Min: $250,000
|Priority Loan Facilities (PLFs)||Min: $250,000
|Expanded Loan Facilities (ELFs)||Min: $10,000,000
|*Actual maximum is lesser of (a) $35,000,000, or (b) an amount when added to all Borrower’s existing debt (including undrawn but available debt), does not exceed 4 times 2019 EBITDA.
**Actual maximum is lesser of (a) $50,000,000, or (b) an amount when added to all Borrower’s existing debt (including undrawn but available debt), does not exceed 6 times 2019 EBITDA.
***Actual maximum is lesser of (a) $300,000,000, or(b) an amount that, when added to all Borrower’s existing debt (including undrawn but available debt), does not exceed 6 times 2019 EBITDA.
Term and Rate:
All Main Street Loans are five-year term loans with a variable interest rate of LIBOR +3%. Using current one-month LIBOR, the rate would be 3.17%. Interest payments are deferred for the first year, and principal payments are deferred for the first two years (15% of principal is due at end of third and fourth years and 70% is due at maturity). Main Street loans may not be subordinate in payment priority to other Borrower loans. NLFs and PLFs are new loans. ELFs are expansions of existing loan facilities already made by the Lender to the Borrower. All loans are full recourse loans. There is no loan forgiveness in the program.
NLF loans may be unsecured or secured on a junior basis to collateral securing other Borrower loans. PLF loans must be either senior to or on parity as to collateral priority with other Borrower loans. ELF loans must be secured in a manner typical for the Lender for the type of loan being made.
Use of Proceeds:
Current FRB guidance provides for no limits on the use of proceeds except that refinancings are limited as follow:
- Main Street Loans cannot be used to directly refinance current loans made by the Main Street lender to the Borrower.
- Only PLFs may be used to refinance current loans owed to other lenders.
Program Expiration Date: September 30, 2020.
General Program Comments:
The jury is still out as to how effective this program will be. While the Borrower size limits are much less restrictive than the PPP loans, the loan underwriting standards are more strict and there is no loan forgiveness. Borrowers who had financial difficulty prior to the pandemic may not be eligible for a Main Street loan. These loans are supposed to address financial issues arising during the pandemic and not pre-existing financial distress. Since the loan rate is set by the program and the Lender retains a portion of the loan exposure, it will be interesting to see how Lenders react to the program interest rate. Like the PPP loan program, Borrowers and Lenders can expect further “clarifications” as we go forward.
The Lenders will be the “gatekeepers” for the Main Street loans. Interested potential Borrowers should contact their existing lenders to see if the program can assist in obtaining additional credit or possibly a lower interest rate than the lender might otherwise offer.