On April 9, 2020, the Federal Reserve announced the “Main Street Lending Program.” This program is among a number of measures provided for under the recently enacted CARES Act in support of small and mid-sized businesses that were in good financial standing prior to the current COVID-19 crisis.

What does the program offer?

The program offers 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments on these loans are deferred for one year.

Banks eligible to participate in this lending program will be able to assist borrowers in originating either new Main Street loans (Main Street New Loan Facility) or use Main Street loans to increase the size of an already existing loan (Main Street Expanded Loan Facility).

What are the requirements under the program?

Businesses seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. There are other required certifications that borrowers should be careful to understand. All are noted on the attached term sheets for each loan facility, which the Fed included with their announcement.

Term Sheet- New Loan

Term Sheet- Expanded Loan

Interestingly, businesses that have applied for a loan under the Paycheck Protection Program (“PPP’) may also take out Main Street loans.

The Federal Reserve announcement identifies eligible lenders as U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.

Loan amounts

The minimum loan size under both loan facilities is $1 million.

The maximum loan size under the Main Street New Loan Facility is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”).

Alternatively, the Main Street Expanded Loan Facility caps maximum loan size as the lesser of (i) $150 million, (ii) 30% of the Eligible Borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the Eligible Borrower’s 2019 EBITDA.

Other terms which both loan facilities have in common include:

1. 4 year maturity;

2. Amortization of principal and interest deferred for one year;

3. Adjustable rate of Secured Overnight Financing Rate (“SOFR”) + 250-400 basis points;

4. Prepayment permitted without penalty.

It should be noted that the Federal Reserve and Treasury are still putting the final touches on finalizing the program. They are currently seeking comments from lenders, borrowers, and other stakeholders until April 16, 2020.

Companies considering seeking this funding should assess their financial needs for the remainder of 2020 as best they can, given these unprecedented conditions. We recommend that you begin collecting information likely to be required, and fully understand the restrictions that will be imposed under the terms of these loans.

Of course, we are here to help as we collectively navigate through these uncertain times. Do not hesitate to contact any member of your KLR service team for assistance. Visit our Coronavirus Resource Center for more information.