BRC’s Guide to the Main Street Lending Program
briefing by Courtney LaLone, CPA
The spread of COVID-19 has led to an unprecedented time for us as individuals, business owners and employees to the extent of significant harm to our communities and the disruption of economic activity throughout the global economy. As a result, small and medium – sized businesses are in need of working capital to keep operational in the hopes of weathering the pandemic’s effect. The availability of credit has contracted due to the economic uncertainty during a critical time when these businesses need access to working capital.
April 9, 2020, the Federal Reserve announced a $600 billion lending program to help small and medium – sized businesses that were on solid financial ground before the onset of the COVID-19 pandemic. This program is called the MAIN STREET LENDING PROGRAM (Program) and will operate through three lending facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF). Then, on June 8, 2020, the Federal Reserve provided additional details and updated terms regarding the Program.
The Main Street program will be receiving additional support from the Department of Treasury in the form of a $75 billion equity investment in a Special Purpose Vehicle (Main Street SPV). The Treasury’s investment was made possible via funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES) ACT. Eligible businesses seeking loans will be required to make commercially reasonable efforts to maintain payroll and retain workers. These eligible borrowers will also be required to follow compensation, stock repurchase and dividend restrictions that apply to direct loan programs under the CARES ACT. S Corporations and other tax pass-through entities will still be allowed to make distributions to the extent reasonably required to cover its owners’ tax obligations in respect to the entity’s earnings.
Unlike the Payroll Protection Program (PPP) loans, the Main Street Program loans are full-recourse loans and are not forgivable under the CARES ACT. These loans can be used for all cash and working capital needs and are not restricted to compensation costs as under the PPP loans.
The official launch date of the program has yet to be announced. Small and medium – sized businesses will need to be aware of the following regarding the three lending facilities and to check eligibility:
The Program offers 3 different secured or unsecured 5-year term loan options at an adjustable rate of LIBOR + 3% with principal deferred for 2 years and interest deferred for 1 year (unpaid interest will be capitalized in accordance with the Eligible Lender’s customary practices for capitalizing interest.) . All loans under the Main Street Program will be allowed to be prepaid without penalty and will be originated by a private financial institution but backed by the Federal Reserve System.
Click here for full information including eligibility and application process >>> Main Street Lending Program