On April 9, 2020, the Federal Reserve Board of Governors announced several extraordinary measures to support the national economy during COVID-19. Among these is the Main Street Lending Program, which will enable up to $600 billion in loans to small and medium-sized businesses. The Main Street Lending Program is, in addition to the Paycheck Protection Program, administered by the Small Business Administration. DWT’s COVID-19 resources, including prior writing on the Paycheck Protection Program, are available here.
Key details of the Main Street Lending Program are:
The Main Street Lending Program will provide support for small and mid-sized businesses that were in good financial standing before the crisis; insolvent companies are ineligible. Borrowers may have up to 10,000 employees or annual revenues of less than $2.5 billion. Borrowers must be U.S. businesses with significant operations and a majority of employees in the U.S.
Participants in the Fed’s large-company programs (the MSELF and the Primary Market Corporate Credit Facility) are ineligible.
What Are the Loan Terms?
The program will offer four-year loans with principal and interest payments deferred for one year. The loans will have an adjustable rate tied to the Secured Overnight Financing Rate (1 bp as of April 8) plus 250 – 400 bps. There is no prepayment penalty.
Is the Program Only for New Loans?
No. The program will allow for new Main Street loans or increases in the size of existing loans to businesses.
What Is the Loan Size?
For new loans, at least $1 million, up to the lesser of (1) $25 million or (2) an amount that, when added to existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA.
For expanded loans (originated before April 8, 2020), at least $1 million, up to the lesser of (1) $150 million; (2) 30 percent of outstanding and committed but undrawn debt; or (3) an amount that, when added to existing outstanding and committed but undrawn debt, does not exceed six times 2019 EBITDA.
Can a Main Street Loan be Used to Pay Off Other Debt?
No. Main street loans cannot be used to repay or refinance existing credit, and the borrower must commit to not repaying other debt of equal or lower priority (except mandatory principal payments) until the Main Street loan is paid.
Are There "Strings" Attached?
Yes. Firms seeking Main Street loans must attest that the company requires financing because of the exigent circumstances presented by COVID-19 and commit to making reasonable efforts to maintain payroll and retaining workers during the loan term. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under CARES Act section 4003(c)(3)(A)(ii).
Will the Main Street Loans Be Forgiven?
No. Unlike the Paycheck Protection Program, the CARES Act does not permit forgiveness of Main Street loans.
May a Firm Apply for a Main Street Loan and a Paycheck Protection Loan?
Yes, firms that have taken advantage of the PPP may also take out Main Street loans.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.