Main Street Lending Program – Update

On May 27, the Federal Reserve of Boston issued additional Main Street Lending Program guidance through expanded FAQs. The Main Street Lending Program was created to support small and medium sized businesses that were negatively impacted by COVID-19. Provided eligibility requirements are met, borrowers of the PPP, may also apply for the Main Street Lending Program.

The Main Street Lending Program provides businesses with less than 15,000 employees or with revenue up to $5 billion with loans for up to four years with below-market interest rates. Borrowers who participate in this program are to make good faith efforts to maintain their payroll and retain employees during the outstanding loan period. Unlike the PPP, these loans must be repaid, but payments can be deferred up to one year. At the loan origination date, the borrower must certify that it is able to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time-period.

Loan Eligibility Summary

• Business must have been established prior to March 13, 2020
• Business has no more than 15,000 employees and 2019 annual revenue was no more than $5 billion
• Business must be a U.S. business with significant operations in the United States and the majority of its employees based in the United States.
• United States companies that are subsidiaries of a foreign company may qualify as long as they are created in the U.S. under U.S. law, and the majority of its employees are based in the U.S. Proceeds of the loan may not be used for the companies foreign parents, affiliates, or subsidiaries.
• Borrower does not also participate in the Main Street Priority Loan Facility (MSPLF), the Main Street Expanded Loan Facility (MSELF), or the Primary Market Corporate Credit Facility
• Borrower is to demonstrate that no other credit sources are available. This does not mean that no other credit sources are available at all. Instead, it means that the borrower is able to certify that they could not secure adequate credit accommodations because the amount, price, or terms of credit are not adequate for the borrower’s needs during the current unusual and exigent circumstances. Borrowers are not required to provide evidence that applications for credit have been denied.

Loan Terms

•  Four-year maturity
• Loan payments and interest can be deferred one year (unpaid interest will be capitalized)
• Interest rate is the adjustable rate of the LIBOR (1 or 3 months) plus 300 basis points
• Loan origination and servicing fees are 100 basis points on the principal amount
• No principal is paid in the first year. The loan will be amortized over the remaining term of the loan, one-third at the end of the second year, one-third at the end of third year, and one-third at the end of the fourth year.
• Loans range from $500,000 to the lesser of $25 million or the amount when added to the borrowers existing outstanding and undrawn available debt does not exceed four times Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
• Borrowers may not receive loans less than $500,000.
• Loan is not subject to a prepayment penalty
• The restrictions on repaying other debt would not prevent a borrower from repaying a line of credit, taking on and paying additional debt obligations required in the normal course of business and on standard business terms, including inventory and equipment financing, provided that such debt is only secured by the new property, or refinancing maturing debt.
• Loans can be deferred up to a year
• Loans are not eligible for forgiveness

We anticipate that the Main Street Lending Program will open soon. Main Street Lending Programs term sheets, forms and agreements can found on the Federal Reserve website.

Over the past few months, many of you have been focusing on your PPP loan forgiveness strategy. As states begin to reopen, we encourage you to put a business strategy in place with a consideration of additional types of liquidity such as the Main Street Lending Program. 

Contact your Whittlesey advisor for more information.