Main Street Lending Program Expanded to Include More Coverage for Main Street Businesses

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The Federal Reserve ( the “Fed”) announced that it is expanding the scope and eligibility of the Main Street Lending Program it originally announced on April 9, 2020. The main thrust of the changes is to open the program up to more participants in as many ways as possible. The new terms create a third loan option, with increased risk sharing by lenders for borrowers with greater leverage; lower the minimum loan size for certain loans to $500,000; and expand the pool of businesses eligible to borrow. The Fed also announced that it is evaluating a separate approach to meet the unique needs of nonprofit organizations. The changes to the Main Street Lending Program come in response to the more than 2,200 comments the Fed received from business owners and nonprofits regarding the scope of the original program. A start date for the program will be announced soon.”^[1]

When the initial terms of the Main Street Program were announced, the minimum loan size was $1 million, there were only two loan options, and those loan options were only available to businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.

Under the new terms, the Main Street Program will now offer more options to a wider set of eligible small and medium-size businesses. The expanded program now includes businesses with up to 15,000 employees or up to $5 billion in annual revenue, doubling the revenue limit and raising the employee limit by 50 percent. The minimum loan size for the New Main Street Loan Facility was reduced to $500,000 from $1 million, and another loan option with more leverage was added, meaning the program now has three loan facilities to support its newly expanded scope: new loans, priority loans and expanded loans.

The Three Main Street Lending Program Loan Options are detailed below:

The New Loan Facility has a maximum loan size of $25 million, or four times 2019 adjusted EBITDA. Lenders will retain a five percent stake in the loan. The minimum loan size is $500,000.
The Priority Loan Facility has a maximum loan size of $25 million or six times 2019 adjusted EBITDA. Lenders will retain a 15 percent stake and the minimum loan size is $500,000.
The Expanded Loan Facility will lend out as much as $200 million, 35 percent of a borrower’s outstanding debt or six times 2019 adjusted EBITDA. Lenders will retain a five percent stake. The minimum loan size is $10 million.

No changes were made to the program’s other eligibility considerations and repayment requirements. Eligible Borrowers are still expected to make every effort to repay their loans and Eligible Lenders must attest that the proceeds of the loan will not be used to repay, or refinance pre-existing loans or lines of credit made to Eligible Borrowers.

^[1]^{The Federal Reserve. Main Street New Loan Facility, April 9, 2020. See}^{https://www.federalreserve.gov/newsevents/pressreleases/monetary20200430a.htm}