Main Street Lending Program Means Business

Beyond the PPP loan and EIDL $$$ we have the little known Main Street Lending Program.

The Main Street Lending program was announced in April by the Federal Reserve to provide up to $2.3 trillion in loans to households, businesses, and state and local governments struggling to deal with the financial fallout from the COVID-19 pandemic.

Specifically, the Main Street program supports loans to U.S. companies with less than $2.5 billion in 2019 revenue that were in good financial standing before the COVID-19 crisis and legislatively mandated quarantines stalled the American economy.

The Main Street program bridges the gap for funding for companies too large for the Paycheck Protection Program (PPP), which is run by Treasury and the SBA, and provides forgivable loans to companies with no more than 500 employees. The idea behind the Main Street Lending Program was to reach entities bigger than the small companies applying for the Paycheck Protection Program money but smaller than the mega-corporations with access to capital markets and other sources of lending.

So how does the program work? Interested businesses will work with an eligible lender to determine if they meet the program requirements, which are available online, as well as the lender’s own underwriting standards. The lender will determine whether a business is approved for a loan. The Fed will participate in the lending by purchasing a 95% interest in the loan. The lender retains 5% of the loan. The program is bolstered by $75 billion in equity provided by Treasury through the CARES Act.

Despite that guarantee, interest from lenders in the program has been tepid. Big Banks Aren’t Embracing Fed’s Main Street Loan Program. Recent data from the Federal Reserve shows that community banks and those with assets under $10 billion have been far more eager to participate in the program. The small-business lending program created problems for big banks, entailing fast-evolving guidance, lawsuits and rampant technical errors. The Main Street program is also very different, since the debt must be repaid and banks must retain some of the credit risk. Lenders can earn origination and servicing fees for the loans, but it may not be enough to encourage participation. There are concerns that only companies in dire straits will opt into the program.

Borrowers have not been lining up for participation either! Companies have five years to pay back the loans, and principal and interest are initially deferred. The Main Street program’s minimum loan size is $250,000, and reporting requirements are something that could dissuade smaller firms from using the program. Congress also set out restrictions in allocating money for the program, including executive compensation limits and stock repurchase and dividend payout limits. The various restrictions and expected scrutiny may render these loans unattractive for borrowers that can obtain market financing, even at a somewhat higher rate.

In response to these concerns, a number of changes were made to the program, which are:

• Lowering the minimum loan size to $250,000 from $500,000.
• Increasing the maximum loan size for all three loan facilities in the program. New loans can now be as much as the lesser of $35 million (up from $25 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed four times adjusted EBITDA. Priority loans can be the lesser of $50 million (up from $25 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed six times adjusted EBITDA. Expanded loans can range from a minimum of $10 million to the lesser of $300 million (up from $200 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed six times adjusted EBITDA.
• Increasing the term of each loan option to five years from four years;
• Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
• Raising the Reserve Bank’s participation to 95% for all loans. Previously, the Reserve Bank purchased 85% of priority loans in the program.
• Program overview can be found here: https://www.uschamber.com/sites/default/files/uscc_covid19_main-street-lending-program.pdf

The Federal Reserve Board recently announced that it has modified the Main Street Lending Program to provide greater access to credit for not-for-profit organizations such as educational institutions, hospitals, and social service organizations. Two new loan options were approved to help not-for-profits that were in sound financial condition before the COVID-19 pandemic hit, and the requirements that not-for-profits need to fulfill to participate in the program were eased.

Each not-for-profit participant must be a tax-exempt organization as described in Sec. 501(c)(3) or 501(c)(19) of the Internal Revenue Code. They must also meet the following adjusted criteria:

• Minimum employees 10 (previously 50).
• Total non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019 (previously 70% of revenues).
• 2019 operating margin of 2% or more (previously 5%).
• Current days cash on hand 60 days (previously 90 days).
• Current debt repayment capacity — ratio of cash, investments, and other resources to outstanding debt and certain other liabilities — of greater than 55% (previously 65%).

The Main Street not-for-profit loan terms generally mirror those for Main Street for-profit business loans, including:

• The interest rate (LIBOR + 3%).
• Principal and interest payment deferral (principal deferred for two years; years 3–5: 15%, 15%, and 70%).
• Five-year term.
• Minimum and maximum loan sizes.

Reach Out To Us: This program was created to support companies that went into the pandemic in good health and had trouble getting access to credit to stay open and keep their staff employed. We understand the challenges facing small and midsized businesses and non-profits, looking for support to stay in business and the financial resources necessary to reopen and rehire workers during the post pandemic economic recovery. Contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it to see if you are eligible and how our pandemic team of experts can help.