April 21, 2020

As part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act, the Federal Reserve is making low-interest loans available to qualified small and mid-sized U.S.-based businesses impacted by the COVID-19 pandemic.

The loans are part of what’s called the Main Street Lending Program. Businesses and non-profits are eligible to receive between $1 million – $150 million if it has fewer than 10,000 employees or up to $2.5 billion in 2019 revenue. Participation in the Small Business Administration (SBA) Paycheck Protection Program (PPP) does not disqualify a business from applying for a Main Street loan. It may participate in both.

The four-year Main Street loans are not subject to forgiveness and must be repaid. Principal and interest payments will be deferred for one year. Businesses that take advantage of the program must make a reasonable effort to maintain payroll and retain workers.

The Main Street Lending Program will operate through two facilities: a New Loan Facility and an Expanded Loan Facility. The New Loan Facility applies to businesses that can incur new debt under their existing agreements or have no existing credit agreements. The Expanded Loan Facility increases a business’ existing term loan that is already outstanding. Both facilities have no penalty for prepayment.

Regardless of which loan facility a business is eligible for, participating borrowers much adhere to the following conditions:

  • The proceeds of the loan will not be used to repay or refinance preexisting loans or lines of credit or repay other debt of equal or lower priority (with the exception of mandatory principal payments, unless the borrower has first repaid the Main Street loan in full).
  •  The business must attest that it requires financing due to the COVID-19 pandemic.
  • The business must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the lender or any other lender.
  • The business must attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under the CARES Act.
  •  The business must attest that it meets specific EBITDA leverage conditions.

The following conditions apply to lenders:

  • Lenders must attest that the proceeds of the loan will not be used to repay or refinance preexisting loans or lines of credit made by the lender to the borrower, including the preexisting portion of the eligible loan.
  • Lenders must attest that it will not cancel or reduce any existing lines of credit outstanding to the borrower.

The Main Street Lending Program is not live yet, but interested businesses should contact their lenders as soon as possible to begin the process of gathering the necessary information to apply. The Federal Reserve will run the program until all appropriated funds have been spent, or until September 30, 2020.

For more information or to determine whether your business may qualify, please reach out to us at questions@walterhav.com. We’re happy to help.