It is an understatement to say that businesses and individuals all over the world have been affected by Covid-19. This has caused considerable financial stress on many businesses forcing them to seek creative ways to stay afloat during this volatile time. Small to medium-sized businesses are a crucial part of our economy and are responsible for creating jobs for millions of Americans. With that in mind, the Federal Reserve has recently developed a new program called The Main Street Lending Program which is designed to provide relief to eligible small and mid-sized businesses, including nonprofits.
This program helps companies who were in sound financial condition prior to the Covid-19 pandemic. The Program encourages banks to loan money more freely to businesses in need of a loan. They do this by purchasing a large portion of the loan from the bank, which then frees the bank from the risk.
More specifically, once your company gets its loan, the Federal Reserve will buy 95% of the loan from the bank, leaving the bank with only 5% of the originated loan. The term of these loans is five years, and amounts generally range between $250,000 and $10 million. It is important to note that these loans are not forgivable and cannot be used to pay off any other existing debt the borrower has.
Five Parts of the Main Street Lending Program
The Program consists of five separate parts, three of which are related to the business lending program and two of which are related to nonprofits. Those related to businesses are commonly referred to as Main Street New Loan Facility (MSNLF), Main Street Priority Loan Facility (MSPLF), and Main Street Expanded Loan Facility (MSELF).
The remaining two facilities are referred to as Nonprofit Organization New Loan Facility (NONLF) and Nonprofit Organization Expanded Loan Facility (NOELF). The facilities for non-profits are not yet operational and the Federal Reserve is currently working to get these up and going soon.
The following is an overview of the facilities related to the business loans being offered. There is a great amount of detail on each and we encourage you to do your research before determining if one of these is right for you.
- MSNLF: Eligible lenders can extend new five-year loans to eligible borrowers ranging from $250,000 to $35 million. The maximum size of the loan cannot exceed four times the borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). To learn more about this click here: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200608a1.pdf
- MSPLF: Eligible lenders can extend five-year loans to eligible borrowers ranging from $250,000 to $50 million. The maximum size of the loan cannot exceed six times the borrower’s adjusted 2019 EBITDA. There are more unique features to loans originated in connection to the MSPLF. To learn more about this click here:
- MSELF: Eligible lenders can increase an eligible borrower’s existing term loan or revolving credit facility. This is a five-year term loan ranging in size from $10 million to $300 million. The maximum size of the loan, when added to the borrower’s existing outstanding debt, cannot exceed six times the borrower’s adjusted 2019 EBITDA. More features of this loan are outlined here:
The opportunity to take part in this program is from now until September 30, 2020, unless the Program is extended by the Board and the Treasury Department. The Federal Reserve will be purchasing up to $600 billion in loans and each comes with a repayment term of five years.
Am I an eligible business?
To be eligible to borrow funds under the program, a business needs to satisfy the following:
- Must have been established prior to March 13, 2020
- Must not be ineligible – for more information see this list of ineligible businesses https://ecfr.io/cgi-bin/text-idx?SID=fa53a93b56da0512f225f4fbcf044d0c&mc=true&node=se13.1.120_1110&rgn=div8
- Must meet at least one of the following two
- Has 15,000 employees or fewer
- Has 2019 annual revenues of $5 billion or less
- The business must be a U.S. business
- Must only participate in one of the Main Street facilities (MSNLF, MSPLF, or MSELF) and must not participate in the PMCCF as well
- Must not have received support pursuant to the Coronavirus Economic Stabilization Act of 2020
- Must be able to make all of the certifications and covenants required under the program
If you are approved for the loan, no payments of principal will be required for the first two years of an MSNLF Loan, MSPLF Loan, or MSELF upsized tranche. Payments of interest are not required until after the first year, then they will be made payable in accordance with the loan agreement.
I’m interested, what’s next?
If you are interested in this you should contact your lender for more information on whether your lender plans on participating in the program and to request more information on the application process. Borrowers will not automatically qualify for a loan, and it’s up to the lender to assess your financial condition. Or if you just have questions SME CPAs is here to help as well.
Darian Betosky, Staff Accountant SME CPAs