Main Street Lending Program Update

On April 9, 2020, the U.S. Federal Reserve launched a $600 billion lending program aimed at helping to relieve the liquidity crisis facing many small and medium-sized businesses in the aftermath of the COVID-19 pandemic. On April 30, 2020, the Federal Reserve announced that it had expanded the scope, options, and eligibility for the new program. The program offers three different loan programs for the borrower to choose from; the Main Street Lending New Loan Program (“New Loan”), Main Street Lending Priority Loan Program (“Priority Loan”), and the Main Street Lending Expanded Loan Program (“Expanded Loan”). A borrower can only participate in one program. The program allows businesses to take part in both this program and the Small Business Administration’s Paycheck Protection Program (“PPP”) however, unlike the PPP loans, the Main Street loans do not have a grant conversion feature and thus are not eligible to be forgiven. Finally, the program is only for commercial businesses, while the Federal Reserve acknowledges the role of not-for-profits in the overall economy, they are not eligible borrowers under the program.

On June 8, 2020, the Federal Reserve further expanded the program, dropping the minimum loan size for the New and Priority Loan programs to $250,000 from $500,000 in the prior revision a month earlier. The New and Priority Loans are now capped at borrowings of $35 million and $50 million respectively, up from $25 million for both programs in the prior revision. The Expanded Loan’s minimum remains at $10,000,000 however the maximum borrowing on the loan increases to $300 million from $200 million in the prior revision. In addition, the Federal Reserve has increased its participation in each loan to 95% for all loan types, whereas under the prior revision the underwriting lender retained 15% of the Priority Loans but only 5% of the New and Expanded Loans. The Federal Reserve also increased the term of each loan to five years up from four years in the prior revision and allowed borrowers to defer principal payments for two years instead of the original one year. It should be noted that borrowers are required to make interest-only payments during the second year and interest will accrue and compound during the first year of the term of the loan. Finally, the principal payment schedule for each loan is now uniform at 15% of principal required to be paid in year three, 15% in year four and the balance of 70% paid in year five; prepayment is permitted. 

Source: U.S. Federal Reserve, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200608a.htm
* - The London Inter-Bank Offered Rate (LIBOR) is due to be no longer reported by the end of 2021, which is during the term of these loans. The Federal Reserve is requiring that all borrowings under this program have language in the contract with an appropriate replacement rate.