The Main Street Lending Program announced by the Federal Reserve on April 9 basically purchases up to loans that banks issue to small and mid-sized businesses.
The start date of the program is yet to be announced (as of May 13), but businesses in need have to be ready to apply.
The Fed has said it will provide up to $600 billion in Main Street loans. The money can include either new lending or increases to existing loans. Banks make the actual loans, but the Fed will buy up to 95% of a loan to minimize the risk to the banks.
Although the Main Street program requires borrowers to make reasonable efforts to keep all their workers, it doesn’t strictly require that any laid-off workers be rehired, as the PPP does.
In order to be eligible for a Main Street Lending Program loan, a business must:
- Have been established before March 13, 2020
- Not be an ineligible business according to Small Business Administration (SBA) Regulations
- The business has 15,000 employees or fewer, or,
- The business has 2019 annual revenues of $5 billion or less.
Additional borrower criteria:
- Must Not Be Insolvent
- Must Not Be on List of Ineligible Businesses
- If a borrower has outstanding loans with the lender as of December 31, 2019, such loans must have an internal risk rating equivalent to “pass” in the Federal Financial Institutions Examination Council’s supervisory rating system on that date (among other criteria).
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There are 3 different types of loans:
- The Main Street “New” Loan Facility is intended to provide eligible borrowers with new loans originated after April 24, 2020.
- The Main Street “Priority” Loan Facility is intended to provide eligible borrowers that are more highly leveraged with new loans originated after April 24, 2020.
- The Main Street “Expanded” Loan Facility is intended to “upsize” existing term loans or revolving credit facilities made to eligible borrowers on or before April 24, 2020, and that have a remaining maturity of at least 18 months.
The minimum loan amount, which is non-forgivable, is $500,000, and while the program is aimed at “larger” small businesses, it does provides advantageous terms and an unique opportunity to evaluate and potentially restructure the balance sheet.
Surfside Capital Advisors provides both short term and long term capital planning solutions. We help small and medium-sized businesses evaluate their options and provide individualized technical advisory services during the application process.
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