More COVID-19 Relief in Main Street Lending Program
Updated May 1, 2020
On April 9, 2020, the Federal Reserve Board released the details of its Main Street Lending Program (MSLP), which will provide up to $600 billion in loans to small and mid-sized businesses, that were in good financial standing before the COVID-19 pandemic. The MSLP is not yet operational, but it is anticipated to be available to borrowers soon.
Created pursuant to multiple provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the MSLP will include three loan facilities, the Main Street New Loan Facility (New Loan Facility), the Main Street Priority Loan Facility (Priority Loan Facility), and the Main Street Expanded Loan Facility (Expanded Loan Facility). All eligible loans may be unsecured or secured. The Expanded Loan Facility will allow “upsizing” of existing secured and unsecured loans. However, if the underlying loan under an Expanded Loan Facility is secured, then the upsized tranche must be secured. An eligible borrower may choose to participate in any of the facilities but not more than one.
Which lenders are eligible to offer MSLP loans?
Eligible lenders are U.S. insured depository institutions (insured banks, savings associations, and credit unions), U.S. bank holding companies, and U.S. savings and loan holding companies.
Which organizations are eligible to borrow funds under the MSLP?
Eligible borrowers are businesses with no more than 15,000 employees or not more than $5 billion in 2019 annual revenues. Borrowers must be US entities organized for profit as a partnership, limited liability company, corporation, association, trust, cooperative, joint venture with no more than 49% participation by foreign business entities, or tribal business concern with significant operations and the majority of their employees based in the United States.
Nonprofit organizations are not currently eligible to receive loans under the MSLP. The Federal Reserve stated that EBITDA is the key to underwriting metric required for all of the loans under the MSLP. However, the Federal Reserve recognizes that the credit risk of nonprofit organizations is generally not evaluated on the basis of EBITDA. The Federal Reserve and the Treasury Department will be evaluating the feasibility of adjusting the borrower eligibility criteria and loan eligibility metrics of the MSLP for nonprofit organizations.
What are the loan terms?
The general terms of the loans are:
|MSLP Loan Options||New Loan Facility||Priority Loan Facility||Expanded Loan Facility|
|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 4x adjusted 2019 EBITDA||The lesser of $25M or an amount that, when added to outstanding and undrawn available debt, does not exceed 6x 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 6x adjusted 2019 EBITDA|
|Payment (year one is 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%|
The above terms were published by the Federal Reserve on April 30, 2020. Click here to see the term sheets for each eligible loan.
What are the requirements for borrowers seeking a loan under the MSLP?
A borrower seeking a MSLP loan must attest as follows:
- It commits to refrain from repaying the principal balance of, or paying any interest on, any debt until the eligible loan is repaid in full, unless the debt or interest payment is mandatory and due.
- It commits that it will not seek to cancel or reduce any of its committed lines of credit with the eligible lender or any other lender.
- It certifies that it has a reasonable basis to believe that, as of the date of origination of the eligible loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
- It commits that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act, except that an S corporation or other tax pass-through entity that is an eligible borrower may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.
- It certifies that it is eligible to participate in the applicable loan facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
In addition to the above, an eligible borrower should make commercially reasonable efforts to maintain its payroll and retain its employees during the time the eligible loan is outstanding. See the Federal Reserve’s applicable term sheets for all eligible loan facilities for both borrowers and lenders here.
Are organizations that receive Paycheck Protection Program loans also eligible to receive MSLP loans?
Yes, Paycheck Protection Program (“PPP”) loan borrowers may also apply for loans under the Main Street Lending Program, so long as they meet the conditions above. Unlike PPP loans, loans under the Main Street Lending Program are not eligible for forgiveness. See our summary of the PPP here.
What should organizations do to prepare for the MSLP application process?
The Federal Reserve Board and the Treasury are taking comments on the Main Street Lending Program through April 16, 2020. We anticipate applications for any loans under this program to be accepted by lending institutions no sooner than the week of April 20, 2020. Like the PPP, the MSLP will likely be a very attractive option for borrowers, so we recommend interested borrowers contact their lenders to discuss the application process as soon as possible and begin gathering necessary documentation.
We will continue to provide updates as regulations are issued. For more resources for nonprofits and churches related to the coronavirus pandemic, visit our COVID-19 resources page, or contact our attorneys for more information.