Federal Reserve Main Street Lending Program
Early April 2020, the Federal Reserve announced the $600 Billion Main Street Lending Program.
The Main Street Lending Program is a new offering created by the Federal Reserve to help businesses during the ongoing COVID-19 crisis and resulting in economic turmoil.
These products are an alternative to the current SBA Disaster programs including the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan (EIDL) program, and the Express Bridge Loan program.
More specifically, the Main Street Business Lending Program establishes three new loan facilities: The Main Street New Loan Facility, The Main Street Priority Loan Facility, and The Main Street Expanded Loan Facility.
What are the Three Main Street Lending Program Facilities?
Main Street New Loan Facility (“New Loan Facility”): The New Loan Facility provides capital backing for eligible bank and non-bank lenders to make new unsecured or secured term loans to eligible U.S. businesses.
Main Street Priority Loan Facility (“Priority Loan Facility”): The Priority Loan Facility provides capital backing for eligible bank and non-bank lenders to make new unsecured or secured Business Term Loans to eligible U.S Businesses, but with different loan terms than New Loan Facility loans.
Main Street Expanded Loan Facility (“Expanded Loan Facility”): The Expanded Loan Facility provides capital backing for eligible bank and non-bank lenders to provide eligible U.S. businesses who have existing loans or lines of credit to increase the amount of the existing loans or lines of credit.
Then again in early June 2020, the Federal Reserve Board announced changes to the upcoming Main Street Lending Program that expanded its scope to help even more small U.S. businesses including but not limited to:
- Companies that receive the New Loan Facility and Expanded Loan Facility cannot use loan proceeds to repay another loan balance. (Only the Priority Loan facility may be used to refinance existing debt.)
- Companies cannot use these loans to cancel or reduce any outstanding line of credit with any lenders.
- The CARES Act states that companies must use the loan to keep ninety percent of the recipient’s workforce at full compensation until September 30, 2020.
- The company must intend to restore not less than 90 percent of its workforce in place on February 1, 2020, and all compensation and benefits to its workers not later than four months after the end of the public health emergency related to COVID-19.
- The company cannot outsource jobs until 2 years after the loan is repaid.
- Businesses may not pay dividends or buy back shares of their company during the course of the loan or for 12 months after the loan has been paid off.
- Highly-paid members of companies that receive a large business loan cannot increase the compensation of any employee whose compensation already exceeds $425,000 or offer these employees significant severance benefits.
What companies could use the Main Street Lending Program?
The following applies to loans under any of the three Main Street Loan Facilities. To be an “Eligible Business” the business:
- The company must be a for-profit business concern;
- The company must either (a) have 15,000 or fewer employees or (b) have had annual revenue in 2019 of $5 billion or less;
- A company must be organized in the United States and have significant operations in the United States;
- A company must have the majority of its employees in the United States;
- A company must not have received support under the Coronavirus Economic Stabilization Act Of 2020; (Important note: a business is still eligible if it received a Paycheck Protection Program loan, which is not covered under the Coronavirus Economic Stabilization Act Of 2020)
- A company must have been established before March 13, 2020
- A company must have been in sound financial condition prior to the COVID-19 pandemic
The Federal Reserve will work with eligible banks and non-bank lenders to provide loans to businesses that are approved. The Fed will participate in lending by purchasing a 95% interest in the loan. The bank or non-bank lender will provide the remaining 5% of the loan.
Note that companies that have already applied to the PPP are also eligible for loans through the Main Street Lending Program.
Main Street loans will have the following features:
- 5 Year Loan Terms for all 3 Main Street Loan Program Products
- Available Funding Amounts :
- New Loan Facility & Priority Loan Facility: $250,000
New Loan Facility & Priority Loan Facility: The lesser of (a) $35 million; or (b) an amount that, when added to existing outstanding and undrawn available debt, does not exceed four times the borrower’s 2019 EBITDA. - Priority Loan Facility: The lesser of (a) $50 million; or (b) an amount that, when added to existing outstanding and undrawn available debt, does not exceed six times the borrower’s 2019 EBITDA.
- Expanded Loan Facility: $10,000,000
Expanded Loan Facility: The lesser of: (a) $300 million; (b) 35% of the borrower’s existing outstanding and undrawn available debt that is equal in priority and secured status with the loan; or (c) an amount that, when added to existing outstanding and undrawn available debt, does not exceed six times the borrower’s 2019 EBITDA.
- New Loan Facility & Priority Loan Facility: $250,000
- Main Street Loan Program Average Interest rates:
Adjustable-rate of LIBOR (1 or 3 months) + 300 basis points - Amortization Terms Available:
- Principal payments deferred for two years and interest payments deferred for one year (unpaid
interest will be capitalized) - Year 3: 15% of the principal due at the end of the third year.
- Year 4: 15% of the principal due at the end of the fourth year.
- End of Year 5: Balloon payment of 70% of principal due at maturity.
- Principal payments deferred for two years and interest payments deferred for one year (unpaid
- Prepayment Availability: Permitted without penalty
- Collateral Required: Main Street Loan Programs will be both Secured or Unsecured
How much capital can company access with the Main Street Lending Program Loan Options?
The Main Street Lending Program offers three different secured or unsecured 5-year term loan options set at an adjustable rate of LIBOR (1 or 3 months) plus 300 basis points with principal deferred for two years and interest payments deferred for one year for eligible borrowers. Unlike the Paycheck Protection Program (PPP) loans, Main Street loans are full-recourse loans and are not forgivable.
All loans under the Main Street Lending Program must permit prepayment without penalty. All loans are made by private financial institutions but backed by the Federal Reserve.
MAIN STREET LENDING PROGRAM LOAN OPTIONS
Main Street New Loans |
Main Street Priority Loans |
Main Street Expanded Loans |
|
Term |
5 years | 5 years | 5 years |
Minimum Loan Size |
$250,000 | $250,000 | 10,000,000 |
Maximun Loan Size |
Lesser of $35M or 4x 2019 adjusted EBITDA | Lesser of $35M or 6x 2019 adjusted EBITDA | Lesser of $300M, 35% of outstanding and undrawn available debt, or 6x 2019 adjusted EBITDA |
Risk Retention by Lender |
5% | 5% | 5% |
Payment (year one deferred for all) |
Years 3-5: 15%, 15%, 70% | Years 3-5: 15%, 15%, 70% | Years 3-5: 15%, 15%, 70% |
Rate |
LIBOR + 3% | LIBOR + 3% | LIBOR + 3% |
Lender Transaction Fee (May be paid by Borrower) |
100 basis points of principal loan amount | 100 basis points of principal loan amount | 75 basis points of principal loan amount |
Borrower Origination Fee |
100 basis points of principal loan amount | 100 basis points of principal loan amount | 100 basis points of principal loan amount |
What are the benefits of the Main Street Loan Programs?
Minimum loan sizes for certain loans have been reduced from $500k to $250k.
Maximum loan sizes have been increased across the board.
Loan terms have been increased from 4 years to 5 years.
Repayment periods that were originally deferred for 1 year, are now deferred for 2 years.
The Reserve Bank’s participation has been raised to 95% of all loans.
Earlier CARES Act stimulus loans like the Paycheck Protection Program Loans were generally limited to businesses with 500 employees or less, but these new loan facilities may be available for companies with up to 15,000 employees.
What are the eligibility requirements for the Main Street Loan Program?
- For profit companies only
- Companies must be United States based with the majority of their operations in the U.S.
- If a company has outstanding loans with the lender as of December 31, 2019, such loans must have an internal risk rating equivalent to “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date.
- Additionally, banks and non-bank lenders are expected to conduct an assessment of each potential borrower’s financial condition at the time of application.
- In addition to other certifications required by statutes and regulations, the following certifications are required by eligible borrowers:
- Companies must commit to refrain from repaying principal balance or interest on any debt until the Main Street loan is repaid in full, unless the debt or interest payment is mandatory and due
- Companies must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Main Street lender or any other lender
- Companies must certify that it has a reasonable basis to believe that, as of the date of origination of the Main Street 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
- Companies must commit to following compensation, stock repurchase, and dividend restrictions as outlined in the CARES Act for the duration of the loan term plus 1 year.
- Exception: S-corporations and other tax pass-through entities may continue to make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings
- Eligible Companies that participate in any Main Street Lending Program facility should make commercially reasonable efforts to maintain its payroll and retain its employees during the time that the term loan is outstanding.
- The Federal Reserve further clarifies that to make “commercially reasonable efforts” borrowers should undertake good-faith efforts to maintain payroll and retain employees, in light of its capacities, the economic environment, its available resources, and the business need for labor. Businesses that have already laid-off or furloughed workers as a result of COVID-19 are still eligible to apply for Main Street loans.
In closing, We here at AmeriDream Capital are faced with the same turmoil of this 2020 Global Pandemic along with the rest of our clients. Therefore we understand their plight and are working diligently with the Federal Reserve to provide access to the Main Street Loan Program.
We want to help provide our clients with all the best tools the market has available to use to weather this storm and to bounce back even stronger than ever. The Federal Reserve Main Street Loan Programs can help companies ease the burden caused by the 2020 Covid-19 Global Pandemic.
Our team of seasoned consultants here at AmeriDream Capital is here to provide our clients with The Federal Reserve Main Street Loan programs. Please apply online, email us for an appointment, or call us today. Our team is committed to helping your business grow with the Main Street Loans Program and will guide you through the process each step of the way.