Fed Announces New Main Street Loan Program Funding for Businesses

Yesterday the Federal Reserve announced that it would take several new actions and provide up to $2.3 trillion in loans intended to boost the economy during the COVID-19 pandemic. This includes a boost to the Paycheck Protection Program (PPP) administered by the Small Business Administration and some new help for larger businesses as well as for state and local governments.

Also announced were new opportunities for funding the “Main Street Lending Program,” which provides financing to lenders to make direct loans to “main street” businesses. This program will support small and mid-sized businesses that were in good financial standing before the pandemic but that may be too small to access the Federal Reserve’s facilities supporting larger corporates, or that may not qualify for the PPP – although you can potentially participate in both the Main Street program and PPP.

According to Treasury Secretary Steven Mnuchin, 40,000 mid-sized companies employing 35 million Americans stand to benefit from this program and the program could leverage up to $600 billion in liquidity. Lenders are required to retain a 5 percent share of each loan, selling the remaining 95 percent to the Main Street Program. Unless extended by the Treasury and Federal Reserve, the program will expire on September 30, 2020. 

How Much Monday Can You Get?

New loans under the program will be available at a minimum of $1 million and potentially up to $25 million. Companies with existing Main Street Lending Program loans, originated before April 8, 2020, can increase their loans under the program with the maximum total amount is up to $150 million.  However, the calculation of the amount a business qualifies for could make it difficult for highly-leveraged businesses to participate as the lender will consider the amount of outstanding and committed but undrawn debt. 

Who Qualifies?

Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues may participate so long as the company was created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S. 

Importantly, small businesses that participate in the SBA’s Paycheck Protection Program may additionally take advantage of the Main Street Program. These programs are not mutually exclusive for businesses that qualify under both, unlike some of the stimulus-related loans.

Additional Details

• Proceeds may not be used to repay or refinance any other debt of the borrower.

• While the loan remains outstanding, the borrower may not repay any other debt of equal or lower priority, with the exception of mandatory principal payments.

• The participating lender may not cancel or reduce any existing lines of credit to the borrower, and the borrower may not seek to cancel or reduce any of its outstanding lines of credit with any lender (including the participating lender).

• The borrower must attest that it needs financing due to the pandemic and that it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.

• There are limitations on stock buybacks for publicly traded companies.

• There are limitations on executive and officer salaries, applicable for one year.

• There are origination fees.

There is more to obtaining these loans than the summary above. Make sure you discuss with your business banker and feel free to reach out to us with any questions.