May 8, 2020

Main Street Lending Program: Is it Right for My Business?

As the COVID-19 pandemic spread, it was apparent that there would be more assistance needed to help our nation’s small and medium sized businesses. Although the Paycheck Protection Program (PPP) was in full swing, it seemed to be a temporary fix for a much longer-term challenge. On April 9th, the Board of Governors of the Federal Reserve announced several additional programs to assist the longer-term needs. The Main Street Lending Program (MSLP) was created to provide an additional $600 billion in funding for assistance well beyond the shorter time frame that the PPP was designed for. 

What is the Main Street Lending Program (MSLP)?

The hope with the PPP was that businesses would recover quickly and get back to some semblance of normalcy. Unfortunately, businesses could experience slower recovery for some time to come. The goal of the MSLP and any further financial assistance will be focused on keeping businesses that were on solid ground before the pandemic, on solid ground after the pandemic.

The MSLP was originally thought to be more suited for larger companies that were unable to receive PPP loans, but that thinking has changed. After much discussion and debate, on April 30th, the Federal Reserve announced several changes that will expand the pool of borrowers substantially.

What assistance is available in the MSLP?

There are currently three programs in the MSLP. Details of each program are outlined below.

 New (MSNLF)Priority (MSPLF)Expanded (MSELF)
Term4 Years4 Years4 Years
RateLIBOR +3%LIBOR +3%LIBOR +3%
Minimum Loan Size$500K$500K$10MM
Maximum Loan SizeLesser of
(a) $25MM or (b) an amount that doesn’t exceed 4x the borrower’s 2019 EBITDA (including undrawn committed debt)
Lesser of
(a) $25MM or
(b) an amount that doesn’t exceed 6x the borrower’s 2019 EBITDA (including undrawn committed debt)
Lesser of
(a) $200MM or
(b) 35% of undrawn committed bank debt, or
(c) an amount that doesn’t exceed 6x the borrower’s 2019 EBITDA (including undrawn committed debt)
Payments (year one deferred for all with unpaid interest capitalized) Principal amortization of 1/3 at the end of the 2nd year, 1/3 at the end of the 3rd year, and 1/3 at maturity at the end of the 4th yearPrincipal amortization of 15% at the end of the 2nd year, 15% at the end of the 3rd year, and a balloon payment of 70% at maturity at the end of the 4th yearPrincipal amortization of 15% at the end of the 2nd year, 15% at the end of the 3rd year, and a balloon payment of 70% at maturity at the end of the 4th year

Is my business eligible for the MSLP?

To be eligible for the MSLP programs, businesses need to fit certain criteria, including:

  •  Must meet at least one of the following two conditions:
    • (a) the business has 15,000 employees* or fewer, or
    • (b) the business has 2019 annual revenues* of $5 billion or less.

*Aggregated with the employees and revenues of its affiliated entities

  • Must have been established prior to March 13, 2020.
  • Must not be an ineligible business according to the SBA.
  • Must have been created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of their employees based in the U.S.
  • May only participate in one of the Main Street facilities (MSNLF, MSPLF, or MSELF) and must not also participate in the Primary Market Corporate Credit Facility (PMCCF).
  • Must not have received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act).

What are my responsibilities as a MSLP borrower?

The borrower will make a certification and covenant that it:

  • Will not use funds to repay or refinance, or pay any interest on, pre-existing loans or lines of credit, or to repay or reduce other loan balances or junior debt obligations, unless such payment is mandatory and due
    • However, under the MSPLF, the borrower may, at the time of origination of the loan, refinance existing debt owed by the borrower to a lender that is not the lender making the MSPLF loan; and
    • Borrowers are permitted to (i) repay lines of credit and credit cards in the ordinary course, (ii) incur additional debt obligations required in the ordinary course, including inventory and equipment financing (subject to certain conditions), and (iii) refinance maturing indebtedness.
  • Has a reasonable basis to believe that, as of the date of origination of the loan or upsized tranche and after giving effect to such loan or upsized tranche, it has the ability to meet its financial obligations for at least 90 days and does not expect to file for bankruptcy during that period.
  • Will not seek to cancel or reduce any existing outstanding lines of credit with lenders.
  • Will not during the life of the loan, plus one year, pay dividends or other distributions to its equity holders or repurchase equity securities listed on a national stock exchange of the borrower or its parent company. One exception is that an S corporation or tax pass-through entity may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the borrower’s earnings.
  • Will not during the life of the loan, plus one year, pay any officer or employee whose total compensation in 2019 exceeded $425,000 (1) compensation for a consecutive 12-month period that exceeds 2019 total compensation paid to that person; or (2) severance pay or other benefits on termination of employment that exceed 2x the 2019 total compensation paid to that person; will not pay any officer or employee whose total compensation in 2019 exceeded $3 million more than $3 million plus 50% of the amount by which such person’s total compensation exceeded $3 million in 2019.
  • Should make commercially reasonable efforts to maintain its payroll and retain its employees during the time the loan is outstanding. Borrowers that have already laid-off or furloughed workers as a result of the disruptions from COVID-19 are eligible to apply for Main Street loans.

How do I apply for the MSLP?

The MSLP can seem very detailed and complicated. It certainly is much more complex than the PPP loans that dominated the economic landscape over the last several weeks. This program is in the initial stages, but changes and additions are being made every day. We urge you do the following two things:

  • Contact an Anders advisor to determine if it makes long term financial sense for your company. We are staying up to date on all of the changes and understand the details of the program.
  • Confirm with your bank that they will be a participant. Don’t be surprised if your bank is unsure of facts at this point.

Learn more about the Main Street New Loan Facility (MSNLF), Main Street Priority Loan Facility (MSPLF), Main Street Expanded Loan Facility (MSELF) and commonly asked questions about the Main Street Lending Program.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential business impacts and benefits. Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

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