As part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted by Congress and signed into law by the President last March, the Federal Reserve has made the Main Street Lending Program (the “Program”) available to a wide variety of businesses, recently updated to include non-profits. Through the Program, participating lenders will be able to offer their customers new and upsized term loans with payment deferral and pricing that may be attractive to borrowers, and 95% risk transfer to the Federal Reserve. Highlights of the Program include:
Key Requirements for Borrowers (Eligibility)
- Financially viable before COVID-19
- A U.S. business incorporated and operating before March 13, 2020
- Either (i) have 15,000 or fewer employees, or (ii) 2019 gross revenue was $5 billion or less
- Certain businesses are ineligible (such as many financial institutions, life insurance companies, some gambling enterprises, pyramid sale distribution businesses, and others)
- Non-profits have substantially different requirements
Key Terms
- It is a loan that must be paid back (not a grant)
- Five-year maturity
- Capped interest rate margin and fees
- No interest payments in the first year of the loan
- No principal payments for the first two years of the loan followed by payments during the last three years
- Loan amounts can vary between $250,000 and $50 million, or up to $300 million upsized
Other Considerations
- Having received a Paycheck Protection Program (PPP) loan does not preclude participation in this Program, but some other CARES Act relief may preclude participation
- Borrowers need to work with an eligible lender who will make the final determination on the application using these and other criteria (including the lender’s own underwriting criteria)
- Program loans are intended to be paid back before most other types of debt and include restrictions on the payment of compensation and dividends that include a 12-month tail
