The Federal Reserve Bank of Boston finally rolled out its long-awaited Main Street Lending Program (“MSLP”). While originally intended to help large and mid-size businesses, the Fed decreased the minimum loan size, making it friendlier to small businesses as well.
The most important thing to note at the outset of this discussion is that MSLP funding is not a grant, and it is not forgivable. It is geared to support businesses who were in sound financial condition prior to the on-set of COVID-19 and now need funds to work through the crisis.
What does the Main Street Lending Program entail?
The program offers three different loan types, which differ mainly in loan size. The loan type most relevant for small and medium-size businesses is the New Loan Facility. For this loan type, borrowers can receive loans ranging from $250,000 to $35 million. The amount recipients may receive depends on their business’ 2019 adjusted net earnings: the maximum loan amount cannot exceed four times the 2019 net earnings.
Source: Federal Reserve Bank of Boston, June 8, 2020; LIBOR (London Inter-bank Offered Rate) is the most common benchmark used by world banks to set interest rates.
Is my business eligible for the Main Street Lending Program?
To be eligible for the MSLP loans, your business must meet the following requirements:
- Established before March 13, 2020;
- Either has up to 15,000 employees or had 2019 annual revenues of up to $5 billion;
May participate in only ONE of these Main Street facilities—New Loan Facility, Priority Loan Facility, or Main Expanded Loan Facility—and must not participate in the Primary Market Corporate Credit Facility;
- Must not have already received government funding under the Coronavirus Economic Stabilization Act of 2020 (passed March 27, 2020), other than PPP or EIDL funding which is allowed by MSLP.
What are the terms of the loan?
The loan term is five years, with principal payments deferred for two years and interest payments deferred for one year. 15% of the principal will be due at the end of years three and four, and 70% will be due at the end of the fifth year. You may also pay ahead of the deadlines without penalty.
What is required of my business?
The Fed has also required the borrower to adhere to the following certifications:
- The borrower must refrain from paying any other debt until the Main Street loan is repaid in full, unless that debt is mandatory and due.
- The borrower must not cancel or reduce any existing lines of credit with the facility lending the Main Street loan or any other lender.
- The borrower must certify its ability to meet its financial obligations for at least the next 90 days and its expectation that it will not file for bankruptcy during that time period.
- The borrower will follow compensation, stock repurchase, and capital redistribution restrictions under section 4003(c)(3)(A)(ii) CARES Act.
Is there a payroll requirement?
Unlike the PPP, borrowers do not have to retain a certain percentage of their employees, but they must make “commercially reasonable efforts” to maintain their payroll and retain their employees.
How do I apply for a MSLP loan?
If you believe you meet the program requirements, reach out to your local lender to apply. The lender will apply both the MSLP’s requirements and their own underwriting standards to determine whether to approve your business or not. The Fed participates in the lending by purchasing 95% of the loan, while the lender retains the other 5%, making these loans more attractive to lenders than a traditional loan.
Should I apply?
For those who have already exhausted their PPP loans, or who are otherwise ineligible for the PPP, the MSLP is still a viable option if your business was in “sound financial condition” before the outbreak. If your company was struggling pre-COVID, you will face difficulty getting loan approval because the lenders participating in MSLP apply their own underwriting standards to evaluate financial condition and creditworthiness.
Whatever lending option you choose to apply for, be sure to examine the conditions associated with each program and make sure that program is the best fit for your business at this time.