Getting COVID-19 Relief Through the Main Street Lending Program

The Federal Reserve eases some of the terms for its new loan program offering financial relief for small businesses.



The Main Street Lending Program (MSLP) is a new $600 billion loan program established by the Federal Reserve under the Coronavirus Aid, Relief and Economic Security (CARES) Act. The program is intended to help support small and medium-sized business that were in sound financial condition prior to the COVID-19 pandemic. This article covers changes that the Federal Reserve made to the program after concerns that the initial terms were too strict, including interest rates that were too high and repayment periods that were too short. The program will run until September 30, 2020.

What are Main Street Loans?

MSLP loans are intended for companies that are too big for small business lending programs but don’t have easy access to capital markets. All loans are made by private financial institutions and backed by the Federal Reserve. The program helps banks by using Federal Reserve funds to buy 95 percent of each loan, leaving banks holding a small portion of the risk. Businesses that successfully applied for and received funds under the Payroll Protection Program (PPP) are eligible to apply for a loan under the Main Street Lending Program.

All MSLP loans have the following terms:

  • a five-year maturity
  • principal payments deferred during the first two years
  • interest payments deferred for one year
  • an interest rate of LIBOR plus 3%, and
  • no prepayment penalty.

Unlike PPP loans, MSLP loans are not forgivable.

What Are the Three Different Loan Options?

There are three different types of loans available through the MSLP:

New Loans: New loans range from $250,000 to $35 million. The loan amount cannot exceed four times the borrower's 2019 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Priority Loans: Priority loans range from $250,000 to $50 million. The loan amount cannot exceed six times 2019 EBITDA.

Expanded Loans: Expanded loans (upsizes to existing loans) range from $10 million to $300 million. The loan amount cannot exceed an amount that is no more than six times the borrower's adjusted 2019 EBITDA.

Main Street Lending Program Options

Loan Type

New Loans

Priority Loans

Expanded Loans

Minimum Loan

$250,000

$250,000

$10 million

Maximum Loan

Lesser of $35 million or an amount that, when added to outstanding and unused available debt, does not exceed 4x adjusted 2019 EBITDA

Lesser of $50 million or an amount that, when added to outstanding and unused available debt, does not exceed 6x adjusted 2019 EBITDA

Lesser of $300 million, or an amount that, when added to outstanding and unused available debt, does not exceed 6x adjusted 2019 EBITDA

Rate

LIBOR + 3%

LIBOR + 3%

LIBOR + 3%

Principal Repayment

Years 1, 2: automatic deferral
Years 3-5: 15%, 15%, 70% annually

Years 1, 2: automatic deferral
Year 2-3: 15%, 15% 70% annually

Years 1, 2: automatic deferral
Year 2-3: 15%, 15% 70% annually

Interest

Deferred for one year

Deferred for one year

Deferred for one year

Who Is Eligible for an MSLP Loan?

You must meet certain minimum requirements to be eligible for an MSLP loan. First, your business must have either:

  • revenues of $5 billion or less in 2019, or
  • 15,000 or fewer employees based on the average total number of employees for each pay period over the 12 months prior to origination of the MSLP loan. You should include in your employee count all full-time, part-time, seasonal, or otherwise employed persons; but not volunteers and independent contractors.

In addition, your business must:

  • have been established prior to March 13, 2020
  • be created or organized in the United States, with significant operations and a majority of your employees based in the United States
  • not be an ineligible business under Small Business Administration (SBA) regulations
  • not be participating in one of the other Main Street facilities or the Federal Reserve’s Primary Market Corporate Credit Facility, or received certain specified support under the CARES Act (which does not include PPP loans), and
  • make certain certifications to establish that you meet the Federal Reserve’s eligibility requirements.

These are the Federal Reserve's minimum requirements you must meet to be eligible for an MSLB loan. Banks are supposed to also apply their own underwriting standards in evaluating a borrower’s financial condition and creditworthiness.

Maintaining Payroll and Compensation Restrictions

Once you have obtained a loan, there are certain requirements you must meet. You must make commercially reasonable efforts to maintain your payroll and retain employees while the loan is outstanding. This means making good faith efforts to maintain payroll and retain employees in light of your capacities, the economic environment, your available resources, and your need for labor. Businesses that have laid off or furloughed workers due to COVID-19 are still eligible to apply for MSLP loans. You also must meet all compensation, stock repurchase and dividend restrictions that apply to direct loans under the CARES Act.

You also must comply with the following restrictions on compensation while the loan is outstanding and for one additional year after that:

  • any non-union employees or officers whose 2019 compensation exceeded $425,000 cannot have their total compensation for any 12-month period exceed their 2019 compensation, and
  • any officers or employees whose 2019 compensation exceeded $3 million cannot have their total compensation for any 12 consecutive month period in excess of $3 million plus 50% of the total compensation over $3 million the person received in calendar year 2019.

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