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Responding to the needs of U.S. businesses amid the evolving coronavirus (COVID-19) pandemic, the Federal Reserve Board announced details on April 9 regarding the Main Street Lending Program, which will deliver four-year loans with deferred principal and interest payments to small- and mid-size businesses with up to 10,000 employees and/or less than $2.5 billion in revenue.

While the Small Business Administration’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) Program are geared toward smaller businesses, the Main Street Lending Program includes larger firms needing assistance within its target sphere. Interested businesses can apply for a Main Street Lending Program loan even if they also have applied for a loan under the PPP. However, they cannot apply if they currently participate in other programs such as the Main Street Expanded Loan Facility (MSELF) or the Primary Market Corporate Credit Facility. Following the release of term sheets and the April 9 press release, the Federal Reserve sought comments from the business community of potential issues with the program. That comment period closed on April 17, and the Federal Reserve is in the process of vetting those comments out.

Eligibility Requirements

 U.S. business with up to 10,000 employees or less than $2.5 billion in revenue in 2019

• In good financial standing prior to the COVID-19 outbreak
• Must make reasonable efforts to maintain payroll and retain workers. It is worth noting here that the Federal Reserve does not define what constitutes a reasonable effort, although it is anticipated that the guidelines will follow similar COVID-19 relief programs promulgated by the Fed.  
• Must follow all applicable restrictions that apply to direct loan programs under the CARES Act—e.g., compensation, stock repurchase, and dividend repurchase restrictions

About the 4-year loans

 Minimum size is $1 million

• Maximum size is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA)
• Interest rate = adjustable rate of the Federal Reserve’s secured overnight financing rate (SOFR) + 250-400 basis points
• Amortization of principal and interest: deferred for one year
• Loans may be prepaid with no penalty
• Fee for loan origination and servicing is 100 basis points or the principal amount of the eligible loan, according to the press release

Where, how, and when can you apply?

 U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies are eligible to be lenders

• No details are available yet about when you can apply or the application process, which is likely to vary from lender to lender. Applications could be through a portal or, in the case of smaller banks, an application form with supporting documentation.
• It is smart to begin preparing now by gathering information about your 2019 IRS payroll filings, all payroll records supporting compensation figures and total workforce numbers. In short, pull together any information that helps you make the case for why the loan is needed.

As mentioned above, the Federal Reserve is working through a host of comments about the program, and we anticipate further guidance will follow. In the interim, we recommend business owners begin conversations now with their current lender or financial institution about this loan program. If the funds are allocated as quickly as those from the PPP, small- and mid-sized companies that are not proactive and already applying may be left in the cold.

Do you have questions about the Main Street Lending Program, or other tax matters? Please contact us today and let us help get your company on the right path.