The now-operational Main Street Lending Program (MSLP) provides opportunities for low-interest, federally subsidized loans for businesses with 15,000 or fewer employees and up to $5 billion in revenue in 2019. However, because it is far more complex – including shared and cross-collateral positions – it may not be as advantageous as it first appears.

Unlike the Paycheck Protection Program (PPP), the MSLP loans must be paid back. There are more than a dozen conditions, requirements and limitations, such as restrictions on executive and other compensation. Applicants are also required to meet various tests, including adjusted EBITDA covenants.

In this alert, we outline the key features of the MSLP and its three distinct loan facilities – New Loans, Expanded Loans and Priority Loans – and address the questions that will help guide businesses in deciding whether the program fits their needs.

Our chart provides a side-by-side comparison of the scope and requirements for each facility.

The MSLP was enacted as part of the Cares Act. The Federal Reserve will be responsible for 95 percent of all loans and the specific lending institution the other 5 percent.

Participating Lenders
The number of lenders participating in the MSLP is significantly smaller than those participating in the PPP program and varies by state. Because of the significant increases in general conditions and reporting requirements and the time-consuming underwriting process, fewer lenders chose to participate.

Eligibility
Borrowers who received a PPP loan or Economic Injury Disaster Loan may also apply for a MSLP loan. However, borrowers and their affiliates may participate in only one MSLP facility. An “Ineligible Business,” as defined by the SBA in the PPP, may not receive a Main Street loan. Also, because of the minimum and maximum loan requirements cited above, a company with negligible or negative adjusted EBITDA in 2019 may not qualify for a MSLP loan.

Use of Proceeds
MSLP proceeds (other than Priority Loans) may not be used to refinance existing debt. Other than debt and interest payments that are mandatory and due, borrowers may not prepay the principal balance or any interest on any debt until the MSLP is paid in full.

Borrower Certifications
Amongst other statements, Borrowers must certify that it shall use commercially reasonable efforts to maintain payroll and retain employees. Borrowers that have laid off or furloughed workers due to COVID-19 restrictions are eligible to apply. Borrowers must also certify that it is unable to secure “adequate credit accommodations” from other sources because the amount, price, or terms of available credit facilities are inadequate for the Borrower’s needs.

Compensation Limitations
Subject to certain exceptions, until 12 months after the MSLP is no longer outstanding, certain caps on compensation must be imposed.

No employee or officer whose total 2019 calendar year compensation was greater than $425,000, and less than $3 million may receive compensation or severance during any 12 consecutive month period that is greater than 2019.

No employee or officer whose total 2019 calendar year compensation was greater than $3 million may receive compensation that exceeds the sum of $3 million plus 50 percent of the compensation over $3 million received in calendar year 2019.

The MSLP is being administered by the Federal Reserve of Boston. Visit its website for details on the the program and participating lending institutions.

* Robert D. Katz, CTP, CPA, MBA, is a Managing Director of EisnerAmper LLP’s Financial Advisory Services Group and an expert in lender relations and increasing cash flow. He is one of the founders of TMA’s most successful conferences: The Distressed Investing Conference. Robert is a member of the CFA Education Foundation and an adjunct professor in Strategic Management and Corporate Finance at Temple University. Contact him at [ Robert.Katz@eisneramper.com ] or 215-881-8828.