New: Main Street Lending Program Available for Businesses up to 10,000 employees

Reading Time: 2 minutesApril 17, 2020 Main Street Lending Program Update:  The Federal Reserve has released a report following the open period for public comments.  The report confirms that the Main Street Lending program is available for employers with up to 10,000 employees, including those with less than 500 employees (even if they have already filed for the Paycheck Protection Program).  It also leaves uncertainty surrounding borrower certifications (it is unclear whether or not the Fed will require them).  K·Coe advisors will continue to communicate updates as they are released by the Federal Reserve ongoing. On April 9, 2020, the Federal Reserve announced details of a $2.3 trillion loan program intended to further bolster the economy in response to COVID-19 impacts.  Within this funding, there is a Main Street Lending (MSL) program which was part of the CARES Act to ensure that credit flows to small- and medium-sized businesses with the purchase of up to $600 billion in loans. This stimulus relief is the first federal loan program that creates eligibility for larger businesses with up to 10,000 employees (potentially including some businesses under 500 employees).  This program can be described as a favorable loan program (yet not a forgivable loan) with some restrictions on compensation and distributions to owners and executives. While there are expected to be additional clarifications and adjustments surrounding the MSL program, below are some of the details that have been released to date.

Main Street Lending Program – High Level Overview

Eligible business criteria:

• Up to 10,000 employees (may be open to some businesses under 500 employees)
• Less than $2.5 billion in annual revenue (in good standing before the crisis)
• Must be a business that is created or organized in the U.S., or has significant operations in (and a majority of its employees based in) the U.S.

MSL loan guidelines:

• Each loan will be for a four-year term
• Principal and interest payments will be deferred for the first year
  • Interest rate is set at 250-400 basis points above the Federal Secure Overnight Financing Rate (currently 0.01%)
• Borrowing terms are set for at least $1 million, and up to $25 million when combined with other borrowing subject to limits of EBITDA
• Loans will be issued through traditional banks

Special notes:

• Borrowers must follow certain executive/owner compensation, distributions, and dividend restrictions
• Borrower attestations will apply.

Among some of the frequently asked questions needing clarity:

• Can Paycheck Protection Program (PPP) participants receive MSL funds?
• What amount of collateral is required for loans in this program?
• What level of employment must be maintained and for how long?

K·Coe Isom will continue to update you as MSL program adjustments and clarifications are released. Should you have questions regarding eligibility and applicability, contact a K·Coe advisor.