Main Street Lending Program

May 22, 2020

So, you’ve done what you can to mitigate the impact of COVID-19 on your small business. You’ve applied — and, hopefully, received — your PPP loans. You’ve taken time to sit back from the minutiae of your business, analyze your core competencies and weaknesses, and proactively plan your upcoming cash flow needs. However, you are still concerned about the long-term effects of the current economic crisis on your business. Or, maybe you are one of the many small business owners who applied for, but did not receive, an EIDL or PPP loan. Luckily, the Federal Reserve is providing alternative aid through the implementation of its Main Street Lending Program.

The Main Street Lending Program was established by the Fed on April 8th as a means of incentivizing “Eligible Lenders” — including banks, savings associations, and credit unions — to provide loans to small and medium-sized businesses. The Program initially consisted of two distinct “facilities”: the Main Street New Loan Facility (MSNLF) and the Main Street Existing Loan Facility (MSELF). On April 30th, the Fed voted to add the Main Street Priority Loan Facility (MSPLF) to the Program.

To facilitate the availability of credit for small and mid-sized businesses, the Treasury has made a $75 billion dollar equity investment in a Special Purpose Vehicle (SPV), a separate entity set up specifically for the Program. The SPV will draw upon the Exchange Stabilization Fund created via the C.A.R.E.S. Act. Along with the Treasury’s investment, the Fed is utilizing its own reserve to guarantee up to $600 billion for loans through the Program. Through the SPV, the Fed and Treasury will fund a percentage of the Eligible Loans in each Facility at a set “participation rate”.

Through the MSNLF and MSPLF, borrowers can obtain newly originated loans from lenders. While the two loan facilities are similar, there are some key differences. The MSPLF allows the borrower to defer the majority of the principal payback until the final year of the loan, whereas payback of the principal is more evenly spread out in the MSNLF. The MSPLF is also less restrictive in its requirements for an eligible loan, allowing for a loan size of six-times 2019 EBITDA, rather than the MSNLF’s four-times EBITDA cap. This is especially beneficial if your business experienced a revenue hit in 2019.

In contrast to the MSNLF and MSPLF, the MSELF allows borrowers with an already existing loan to “upsize”, or increase this loan amount. The MSELF is particularly beneficial for borrowers who already rely on bank financing to minimize the number of differing loans on their balance sheet.

The terms of each loan facility are detailed in the table below.

So, how can you gain access to these Programs as an Eligible Borrower? To be eligible for the Programs, your business must meet the following requirements:

  • Was established in the United States prior to March 13th, 2020
  • Has fewer than 15,000 employees or had 2019 annual revenues of $5 billion or less
  • Must participate in only one of the Main Street Lending Program’s facilities

Unlike the PPP, there are no strict constraints on what expenses the loan can be used for, although the Federal Reserve advises borrowers to make “commercially reasonable efforts to maintain its payroll and retain its employees during the time the Eligible Loan is outstanding”. Once the program is operational, you can decide between which Loan Program to apply for. Businesses will need to apply by contacting an Eligible Lender.

A lot of information to keep track of in an already confusing and uncertain time? We understand. At GrowthLab, we’ve walked numerous small businesses through the process of obtaining capital; from facilitating introductions to bankers to helping construct loan packages. We will navigate the complexities of the Program by helping you choose the right Facility based on your existing loans and debt levels. Through our extensive network of banking relationships, we can direct you to a reliable Eligible Lender to fund your loan. While the Program is not yet operational, GrowthLab is here to begin the conversation with you.

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