Main Street Lending Program Targets Relief for Small and Midsize Businesses

Responding to the needs of U.S. businesses amid the evolving coronavirus (COVID-19) pandemic, the Federal Reserve Board announced details on the Main Street Lending Program, which will deliver four-year loans with deferred principal and interest payments to small and midsize 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 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.

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.
• 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 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 of April 20, 2020, Main Street Loans are still available. Therefore, we recommend business owners begin conversations now with their current lender or financial institution about this loan program.

As the COVID-19 crisis continues to unfold, we will continually monitor the situation and tax matters surrounding it and provide timely updates as information becomes available. If you have any questions about this program or how it may impact your business please contact your ALL tax advisor or call us at 617-738-5200.