We have been talking a lot over the past few weeks about the Small Business Administration (SBA) programs created in the CARES Act that are available for small businesses. We now have information related to loans for larger companies – the Federal Reserve has announced a $600 billion lending initiative designed for mid-sized businesses through the newly unveiled Main Street Lending Program, which requires the establishment of two new loan facilities: the Main Street New Loan Facility, and the Main Street Expanded Loan Facility.
Unlike the SBA’s Economic Injury Disaster Loan and the Paycheck Protection Program, both of which are currently accepting applications and are aimed at smaller businesses, the Main Street Program will be the first federal relief program aimed at larger companies. (Note: If you already applied for a loan with the Paycheck Protection Program, you can also apply for a Main Street loan.).
The Main Street Lending Program is designed to support businesses that were in good financial standing before the crisis. Further details for obtaining, completing and submitting applications for loans under the Main Street Program have not been released; however, we know that applications will be made through participating banks and not the US Government. Here is what else we know:
- Business and non-profits with up to 10,000 employees or with revenues of less than $2.5 billion are eligible;
- Applicants must have incurred or will incur “covered losses” as a result of COVID-19, including reduced demand, unbudgeted medical expenses and unavailability of credit;
- Loans offered will have a 4-year maturity;
- Principal and interest payments will be deferred for one year;
- Interest rates will be at market;
- For Main Street New Loan Facility loans: Maximum loan size that is the lesser of (i) $25 million, or (ii) an amount that, when added to the borrower’s existing outstanding and committed by undrawn debt, does not exceed four times the borrower’s 2019 earnings (before interest, taxes, depreciation, and amortization);
- For Main Street Expanded Loan Facility loans: Maximum loan size that is the lesser of (i) $150 million, (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the borrower’s existing debt, does not exceed six times the borrower’s 2019 earnings (before interest, taxes, depreciation and amortization).
It is important to note than unlike the SBA Loans, certain restrictions apply to recipients under the Main Street Programs. A few highlighted restrictions are as follows:
- Stock dividends or buybacks will not be permitted for one year after the term of the loan;
- The borrower must make “reasonable efforts to maintain payroll and retain employees” until September 30, 2020;
- The borrower will not outsource or offshore jobs for the term of the loan and for two years after the term of the loan;
- The recipient will not abrogate collective bargaining arrangements in place for the term of the loan and for two years afterwards and will remain neutral in any union organizing effort during the term of the loan.
Neither the Federal Government or banks have yet to issue exact details regarding applicants and how to apply, but we expect more information within the next week.
