The Federal Reserve has announced that it will ensure that credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. Eligible banks (defined below) may originate new Main Street loans or use Main Street loans to increase the size of existing loans. Lending banks will retain 5% of the loan and will sell the remaining 95% to the government’s Main Street facility.
Below are some questions and answers regarding the program:
What companies are eligible to participate?
The Main Street Lending Program will offer four-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion in 2019. Each borrower must be a business that was created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States.
Can borrowers participate in both the Paycheck Protection Program and the Main Street Lending Program?
What lenders are eligible to make Main Street loans?
Eligible lenders include U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.
What loans are eligible for the program?
Eligible loans include unsecured term loans that were originated on or after April 8, 2020 that include the following features:
- four-year maturity;
- principal and interest payments deferred for one year;
- adjustable interest rate of SOFR plus 250–400 basis points;
- minimum loan size of $1 million;
- maximum loan size that is the lesser of (1) $25 million or (2) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA; and
- no prepayment penalty.
Do Main Street loans place any restrictions or requirements on borrowers and lenders?
Yes, including the following:
- Borrowers must commit to make reasonable efforts to maintain payroll and workers.
- Borrowers must follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
- Proceeds cannot be used to repay other loan balances.
- Borrowers may not repay other debt of equal or lower priority (with the exception of mandatory principal payments), until the Main Street loan has first been repaid in full.
- Lenders may not cancel or reduce any existing lines of credit outstanding to the borrower. Borrowers may not seek to cancel or reduce any outstanding lines of credit with any lender.
- Borrowers must require the financing due to the exigent circumstances presented by the Covid-19 pandemic.
What fees are applicable?
Lending banks will pay the government a facility fee of 100 basis points of the principal amount of the loan participation purchased by the government. Lenders may require borrowers to pay this fee.
Borrowers will pay the lender an origination fee of 100 basis points of the principal amount of the loan.
The government will pay the lender 25 basis points of the principal amount of its participation in the loan per year for loan servicing.
When will the program end?
The government will stop purchasing participations on September 30, 2020, unless extended by the Federal Reserve and the Treasury. The Federal Reserve will continue to fund the program until the underlying assets mature or are sold. The initial authorization for the program is $600 billion, and presumably the government will continue to purchase participations until the authorization is exhausted or until the September 30 termination date.
On May 27, 2020, the Federal Reserve released additional information for potential lenders and borrowers on the Main Street Lending Program, including updated frequently asked questions and program documents. The program will be implemented by the Federal Reserve Bank of Boston. The program documents include lender registration documents and transaction-specific documents required at the time a loan participation is sold to the program by an eligible lender.
The program documents and frequently asked questions can be found here.