Small Business

The Federal Reserve announced today a $2.3 trillion initiative to bolster local governments and support small to medium-sized businesses. Included in the package is $600 billion for the Main Street Lending Program, which includes the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF). MSNLF loans are new originations after April 7, and MSELF loans are upsized tranches of loans originated before April 8.

Businesses that have already taken advantage of the Paycheck Protection Program (PPP) may take out Main Street loans, as well as firms with more than 500 employees that were excluded from the PPP and EIDL programs.

The Federal Reserve, through a special purpose vehicle, will purchase 95 percent participations in the loans. With only 5 percent at risk, lenders should be more willing to provide financing than they would be otherwise, particularly since an MSNLF loan is unsecured. The origination and servicing fees earned by the lender may provide further incentive to extend credit.

Here are some highlights:

Eligible Lenders: U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies.

Eligible Borrowers: Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Must be a business that is created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the U.S. A borrower cannot participate in both the MSNLF and MSELF.

Eligible Loans: Term loan made by an Eligible Lender to an Eligible Borrower originated after April 7 (upsized after April 7 for MSELF loans), provided that the loan has the following features:

  • 4 year maturity
  • Amortization of principal and interest deferred for one year
  • Adjustable rate of SOFR + 250-400 basis points
  • Minimum loan size of $1 million
  • Maximum MSNLF loan size is the lesser 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 2019 EBITDA
  • Maximum MSELF loan size is the lesser of:
    • – $150 million,
    • – 30 percent of the borrower’s existing outstanding and committed but undrawn bank debt, or
    • – An amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 EBITDA
  • MSNLF loans are unsecured, whereas MSELF loans are secured.
  • Prepayment permitted without penalties

A 1 percent origination/upsizing fee will be paid by the borrower to the lender. In addition, a 1 percent facility fee is due for MSNLF loans, which the lender may require the borrower to pay. The borrower cannot use the proceeds to repay other loans, and cannot repay other debt of equal or lower priority, with the exception of mandatory principal payments, unless the Eligible Loan has been repaid in full. The borrower must make reasonable efforts to maintain its payroll and retain its employees for the term of the loan. Compensation, stock repurchase, and capital distribution restrictions also apply.

Read more about all of the Treasury Department’s recent actions to support the U.S. economy here.

Please contact an MCB Advisor if you need assistance in applying for a loan under this program.

We will continue to update you as we get more information on Coronavirus-related legislation and guidance that may impact you. Continue to check back here for the most up to date tax information and changes in response to Coronavirus. If you have more questions contact an MCB Advisor at 703-218-3600 or click here. 

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