UPDATE 06/08/2020.
The Federal Reserve has changed the terms to allow for greater participation in the Main St. Lending Program that should be available some time in June.
The central bank is lowering the initially stated minimum loan to $250,000 and raising the maximum that can be borrowed. The maximum loan amount will vary by facility with the maximum being $300M The loan term will be expanded to 5 years.
The repayment period has been extended from four years to five years. The repayment period will now be delayed to two years. Interest also is delayed for one year and will be LIBOR, a commonly used overnight lending rate, plus 3%. The Fed also will now assume just 5% of the loans, with lenders holding the rest.
The Main Street Programs is facilitated by the Treasury and is leveraged by the Federal Reserve. The Treasury is providing $75 billion in equity that can be used for $600 billion in lending.
UPDATE 05/28/2020. The Federal Reserve Bank of Boston today released several borrower and lender documents for the Fed’s Main Street Lending Program, which is expected to launch in the coming days.
The revised FAQ document adds numerous new answers that provide more details on MSLP design, lender and borrower eligibility,
The Main Street Lending Program was announced but the final rules have not been released. It is a collaboration between the U.S. Treasury Department and the Federal Reserve. This loan program is designed to make it easier for banks to lend to eligible businesses. This loan program is not available to lend yet. Lending is expected to begin by the end of April or May 1, 2020.
The Main St. Lending Program (MSLP) was designed to make it easier to lend to businesses:
- That are already in existence and are established.
- Generally have a credit relationship with their bank.
- The bank can evaluate the business’ credit worthiness.
- There are certain EBITDA tests with respect to earnings that have to be satisfied.
- Capped at 4x EBITDA
- The established business must have fewer than 10,000 employees.
- The loan minimum size is $1M
- The loan maximum is $25M (capped at 4x EBITDA)
- Some might qualify for up to $150MM with 6x EBITDA cap
- There is no loan forgiveness.
The U.S. Chamber of Commerce believes the $1M loan minimum will come down, which will makes this program more available to more small businesses.
Current terms of the Main St. Lending Program (subject to change):
- 4-year loan
- Interest rate range in part based on the overnight lending costs for the Federal Reserve plus an additional amount. (SOFR + 250-400 bps)
- Principal and interest payments are deferred for the first year.
- There are requirements on expenditures.
- They have to make good faith commitment that the business will try to, as much as practically possible, to preserve employment.
- Generally, looks like a tradtional loan.
Additional noteworthy information:
- The Main St. Lending Program can be combined with the PPP.
- This program acts to provide a funding bridge into the future as another source of funding.
- It is expected that different banks will vary in how aggressive terms will be.
- Designed for small and mid-sized companies with revenue less than $2.5 billion.
- Up to $600 billion to help medium-sized business maintain keep workers employed.
- This program provides regulated banks a funding facility to extend unsecured loans that are not federally guaranteed, but instead are sold to the Federal Reserve via a 95% participation.
