The CARES Act — the $2 trillion spending law approved on March 27, 2020 to help grapple with the economic damage from the COVID-19 crisis – included the creation of a new lending program to help small to mid-size businesses, dubbed the Main Street Lending Program.
According to a release from the Board of Governors of the Federal Reserve, “The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments will be deferred for one year.” Main Street loans will be handled by banks, but the Federal Reserve’s lending facility will own up to 95 percent, or up to $600 billion of loans.
The loans will come with limits on executive compensation, stock repurchases and dividends. The restrictions come from the CARES Act and although the law did not designate that they applied to this program, the Fed has applied them anyway.
Loans would be for up to four years at an adjustable rate, for at least $1 million. Payments of both principal and interest would be deferrable for a year, although borrowers could prepay without any penalty. Borrowers will need to make reasonable efforts to maintain payroll and retain employees.
Unlike the SBA’s Paycheck Protection Program (PPP), the Main Street loans will not be forgivable, regardless of what they’re spent on.
Speaking of that SBA program, applying for a PPP loan right now won’t necessarily obviate your chances at a Main Street loan later, once the program launches (presumably in mid-May). “Firms that have taken advantage of the PPP may also take out Main Street loans,” according to the Fed.
The Main Street New Loan Facility is for new loans of up to $25 million or a total of four times a company’s 2019 Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA), whichever is less. These would be for new borrowers without an existing loan from the bank.
The Main Street Expanded Loan Facility is for borrowers to increase their existing loans by up to $150 million, 30 percent of their aggregated bank debt, or a total of six times their EBITDA.
Law firm K&L Gates produced detailed fact sheets on the new loans and the expanded loans.
The Fed is accepting public comment on the Main Street Lending Program until April 16. Interested IA members are encouraged to weigh in (especially on the potential restrictions that the Fed decided to bundle with these loans).
This information is not intended and should not be construed as or substituted for legal, accounting or financial advice. It is provided for informational purposes only. It is advisable to consult with private counsel, accountants, or financial advisors on the precise scope and interpretation of any laws/regulation/legislation and their impact on your particular business.
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BusinessHoward Fienberg, CAE – The Insights Association
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