The Fed has announced revisions to the Main Street Lending Program that will make it possible for more small and midsize companies to receive financial support once the program opens -- hopefully this week.
Among the changes announced are:
- Lowering the minimum loan size to $250,000 from $500,000.
- Increasing the maximum loan size for all three loan facilities in the program. New loans can now be as much as the lesser of $35 million (up from $25 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed four times adjusted EBITDA. Priority loans can be the lesser of $50 million (up from $25 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed six times adjusted EBITDA. Expanded loans can range from a minimum of $10 million to the lesser of $300 million (up from $200 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed six times adjusted EBITDA.
- Increasing the term of each loan option to five years from four years;
- Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
- Raising the Reserve Bank’s participation to 95% for all loans. Previously, the Reserve Bank purchased 85% of priority loans in the program.
The Main Street program is one of a series of programs the Federal Reserve announced in April to provide up to $2.3 trillion in loans to households, businesses, and state and local governments struggling to deal with the COVID-19 pandemic. Specifically, the Main Street program sought to support loans to U.S. companies with less than 10,000 employees or less than $2.5 billion in 2019 revenue -- those ineligible for PPP loans -- that were in good financial standing before the COVID-19 crisis hit and subsequent stay-at-home orders stalled the economy.
The Main Street program is now open to companies with less than 15,000 people or annual revenue of less than $5 billion last year. Companies that have received Paycheck Protection Program loans are eligible to participate, but please be aware that Main Street loans will not be forgivable. The program is authorized by the Treasury Department to provide up to $600 billion in loans, with a backstop of $75 billion from Treasury to cover loan losses if necessary.
This program may be a lifeline for businesses as they struggle during this crisis, but we urge you not to jump too quickly. As always, please reach out to your BGW team before taking on additional debt.
For more information on navigating your business through the current crisis, including managing PPP loans, please visit our COVID-19 resource center or join us on an upcoming free webinar. Recorded sessions are available on our YouTube channel.