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April 13, 2020

The Main Street Business Lending Program: Breaking Down the Key Details

Updated 6/16/2020 at 1:50pm ET

Main Street Lending Program Update – Lender Portal is Now Open

The Federal Reserve Bank has reached another milestone as it prepares to launch the Main Street Lending Program (MSLP).  The Fed announced today the opening of the Lender Registration portal.  Lenders interested in providing loans to support small and medium sized businesses that were in sound financial position before the pandemic can access the registration portal here.

SC&H’s Key Takeaways

  • If you are a small or medium sized business that needs additional support outside of the CARES Act’s Paycheck Protection Program or other Small Business Administration Loans, the Main Street Business Lending Program could help bridge the gap.
  • This program is designed for businesses with under 10,000 employees or up to $2.5 billion in 2019 revenues.
  • Businesses may borrow a minimum of $1 million with a 4-year term, with interest and principal deferred for one year.
  • The program is not live yet.  The Federal Reserve is still working to establish the mechanics behind the loan.

The Federal Reserve initially announced its Main Street Business Lending Program (MSBLP), which is designed to complement other Small Business Administration (SBA) and CARES Act loans such as the Paycheck Protection Program (PPP), on March 23rd. Specifically, the loan is geared towards small and medium sized businesses with under 10,000 employees and can be used in conjunction with other loans from the CARES Act.

On Thursday, April 9th, the Federal Reserve released critical information related to the terms and conditions that would be provided under the MSBLP. Below are the key takeaways, from the recently released term sheets.

MSBLP Eligibility

  • The program provides loans to businesses with up to 10,000 employees or up to $2.5 billion in revenue.
  • Must be a business created in the United States and have significant United States operations and employee base.
  • May not participate in both the MSBLP and the Primary Market Corporate Facility.

MSBLP Loan Terms

  • Minimum loan size of $1 million.
  • Maximum loan size that is the lessor 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 the borrower’s EBITDA.
  • 4-year maturity.
  • Unsecured Loan – a key difference from the Primary Market Corporate Facility.
  • Amortization of principal and interest deferred for one year.
  • Adjustable rate of SOFR + 250-400 basis points.
  • No Prepayment penalties.
  • This loan cannot be forgiven like the PPP loan.

MSBLP Loan Requirements

In order to obtain the MSBLP loan, businesses must adhere to the following requirements:

  • Commit to refrain from using the MSBLP to repay any other loan balances and must commit to refrain from repaying any other debt of equal or lower priority (outside of mandatory principal payments) until the MSBLP is repaid in full.
  • Attest to not reduce or cancel any outstanding lines of credit.
  • Attest that the financing is required due to impacts of COVID-19, and that the business will make reasonable efforts to maintain payroll for the duration of the loan.
  • Attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
  • Certify eligibility, including meeting the conflict of interest prohibition 4019(b) of the CARES Act.

MSBLP Loan Fees

Business should expect to pay anywhere from 100 to 200 basis points on the principal of the loan from the following:

  • Facility Fee: Lenders will pay a facility fee of 100 basis points of the principal. The lender can require the borrower to pay this fee.
  • Loan Origination and Servicing: Borrowers will pay lenders a loan origination fee of 100 basis points of the principal.

We expect to see more information released related to the MSBLP, and our team will continue to monitor the situation and provide updates as things change. If you have any questions in the meantime, please reach out to our team here.

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