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Federal Reserve’s Main Street Lending Program
On April 30, 2020, the Federal Reserve announced new terms for its Main Street Lending Program to support the provision of credit to small and medium-size businesses. Using funds appropriated by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Federal Reserve has pledged to purchase up to $600 billion of participations in eligible loans from qualified lenders through September 30, 2020. The program offers three types of loans: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF) and the Main Street Expanded Loan Facility (MSELF).
Businesses must satisfy the following criteria in order to be eligible for any loan through the Main Street Lending Program:
- be a U.S. business;
- established prior to March 13, 2020;
- meet at least one of the following two conditions:
- has 15,000 employees or fewer, or
- has 2019 annual revenues of $5 billion or less;
- The business:
- must not be an “ineligible business” as defined by certain Small Business Administration (SBA) regulations;
- must not also participate in the Primary Market Corporate Credit Facility (PMCCF); and
- must not have received support pursuant to section 4003(b)(1)-(3) of the CARES Act.
Businesses that have received Paycheck Protection Program (PPP) loans are not precluded from borrowing under the Main Street Lending Program. However, unlike the PPP, Main Street loans are not forgivable and are not available to nonprofit organizations. (For additional information on PPP loans, please see our web site.)
Eligible businesses may participate in only one Main Street facility: MSNLF, MSPLF or MSELF. The terms of each loan are set forth below:
Main Street Lending Program Loan Options | New Loans(MSNLF) | Priority Loans(MSPLF) | Expanded Loans(MSELF) |
| Term | 4 years | 4 years | 4 years |
| Minimum Loan Size | $500,000 | $500,000 | $10,000,000 |
| Maximum Loan Size | The lesser of $25M or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted 2019 EBITDA. | The lesser of $25M or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA. | The lesser of $200M, 35% of existing outstanding and undrawn available debt, or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA. |
| Lender’s Risk Retention | 5% | 15% | 5% |
| Payment (Year one deferred for all.) | Years 2-4: 33.33% each year | Years 2-4: 15%, 15%, 70% | Years 2-4: 15%, 15%, 70% |
| Rate | LIBOR + 3% | LIBOR + 3% | LIBOR + 3% |
Eligible borrowers should make commercially reasonable efforts to retain employees during the loan’s term. They also will be required to pay a fee and make other certifications and covenants specific to their MSNLF, MSPLF or MSELF loan. Businesses interested in participating in the Main Street Lending Program may apply through their local lender.
For questions regarding the Main Street Lending Program, please contact Mr. Roepke.
Anna L. Crisp, a law clerk with Eastman & Smith who is finishing her third year at The Ohio State University Moritz College of Law, contributed to this article.
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Disclaimers:
At the date of publication the above information was correct. It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.
The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.