On April 9, 2020, the Federal Reserve announced that they would inject $2.3 trillion in lending facilities to support the struggling economy, specifically through the Main Street Lending Program and loans to state and local governments. 

This additional sum follows the March 27th CARES Act—a $2 trillion dollar stimulus package signed into law by the President and Congress. While the CARES Act concentrated on small business relief—through popular initiatives like the Paycheck Protection Program (PPP)—the new and expanded lending programs from the Federal Reserve are intended to open up new funding avenues for mid-sized businesses. 

In order to expand the scope of Main Street Loans, the Fed announced updates to the program on April 30, 2020 that included a “priority” loan program, a lower minimum borrowing amount, and new structures for repayment.

What is the Main Street Lending Program?

Through the Federal Reserve, the Main Street Lending Program will purchase up to $600 billion in loans to small- and mid-sized businesses. Loans will be issued through regular banks who will then sell 85-95% of the loan back to a special purpose vehicle created by the Federal Reserve.

The April 30th updates expanded loan limits to businesses with up to 15,000 employees and $5 billion in annual revenue (from 2019). The minimum loan size also decreased to $500,000 (instead of $1 million). 

Updated terms for the Main Street Lending Program are as follows:

Main Street Lending Program
New loans Priority loans Expanded loans
Eligible businesses

Small or mid-size companies that:

  • Have up to 15,000 employees or up to $5 billion in revenue
  • Were established prior to March 13, 2020
Min borrowing amount $500,000 $500,000 $10,000,000
Max borrowing amount $25,000,000 $25,000,000 $200,000,000
Term length 4 years  4 years  4 years 
Interest rates LIBOR + 3% LIBOR + 3% LIBOR + 3%
Payments Year 1: Deferred

Year 2: 33.33%

Year 3: 33.33%

Year 4: 33.33%

Year 1: Deferred

Year 2: 15%

Year 3: 15%

Year 4: 70%

Year 1: Deferred

Year 2: 15%

Year 3: 15%

Year 4: 70%

Businesses who take out Main Street loans commit to making “reasonable efforts” to keep employees on the payroll. They are also subject to the same lending rules as outlined in the CARES Act (including no buybacks, dividends, or compensation for officers).

While the Main Street lending program has been extended primarily to mid-sized businesses, small businesses can also apply. Even borrowers who have taken out PPP loans can qualify for additional funding through Main Street loans.

Who’s eligible for the Main Street Lending Program?

Businesses with up to 15,000 employees or $5 billion in revenue that were in good financial standing prior to the COVID-19 crisis are eligible for Main Street lending. At this time, nonprofits are not eligible. 

Eligibility criteria for new, priority, and expanded loans are the same.

Other requirements include:

  • Established prior to March 13, 2020
  • Must not be an “Ineligible business” (as defined by the SBA)
  • Must be a U.S. business
  • May only participate in one of the Main Street facilities
  • Must not also participate in the Primary Market Corporate Credit Facility (PMCCF)
  • Must not have received specific support pursuant to the CARES Act 
  • Must be able to make all certifications and covenants required

Though borrowers are limited to participating in one of the Main Street loan facilities, receipt of Paycheck Protection Program loans does not prohibit them from participating. 

Lenders are responsible for determining whether or not borrowers meet all eligibility criteria. (Full details for borrower eligibility are outlined in the FAQs for the Main Street Lending Program).

Who are eligible lenders?

Eligible lenders include financial institutions (like banks and credit unions) that are federally insured or include U.S. branches. Currently, nonbank financial institutions are not considered eligible lenders. 

Banks are incentivized to provide Main Street loans as they get to keep a 5%-15% share. These lenders share risk with the Federal Reserve. 

The risk retention assumed by the banks varies based on the type of loan.

Main Street Lending Program (for lenders)
New loans Priority loans Expanded loans
Eligible lenders Financial institutions, like banks and credit unions (non-banks do not qualify)
Risk retention 5% 15% 5%

Main Street Lending Program: New loans

New loans created under the Main Street Lending Program must have originated after April 24th, 2020. These loans may be secured or unsecured, cap at $25 million, and mature in four years. 

Principal and interest payments are deferred for one year. For years two through four, the payment amounts are divided equally at 33.33%. Prepayments are permitted without penalty.

Main Street New Loan Facility
Eligible businesses

Small or mid-size companies that:

  • Have up to 15,000 employees or up to $5 billion in revenue
  • Were established prior to March 13, 2020
Min borrowing amount $500,000
Max borrowing amount $25,000,000
Term length 4 years 
Interest rates LIBOR + 3%
Payments Year 1: Deferred

Year 2: 33.33%

Year 3: 33.33%

Year 4: 33.33%

Main Street Lending Program: Priority loans

After announcing the initial terms of the Main Street Lending Program, the Federal Reserve Board consulted banks and businesses to determine if the loans matched their varying financial needs. They indicated that they received feedback in the form of over 2,200 letters

In response to this input, the Fed decided to add a third lending facility to the program, Priority loans

These loans also must have originated after April 24th, 2020 and cap at $25 million or an amount that, when added to outstanding and undrawn available debt, does not exceed 6.0x adjusted 2019 EBITDA. These loans may be secured or unsecured and also mature in four years. 

Another primary difference in this loan type is that lenders retain 15% share of the loans, in contrast to the 5% allotted by new and expanded loans. 

Principal and interest payments are again deferred for one year, though repayment responsibility falls most heavily in year four (when 70% is due). Prepayments are permitted without penalty.

Main Street Priority Loan Facility
Eligible businesses

Small or mid-size companies that:

  • Have up to 15,000 employees or up to $5 billion in revenue
  • Were established prior to March 13, 2020
Min borrowing amount $500,000
Max borrowing amount $25,000,000
Term length 4 years 
Interest rates LIBOR + 3%
Payments Year 1: Deferred

Year 2: 15%

Year 3: 15%

Year 4: 70%

Main Street Lending Program: Expanded loans

Terms for Expanded Main Street loans are intended to offer greater flexibility to businesses with existing relationships with banks. With an expanded loan, businesses can “upsize” their existing term loans or revolving credit facilities. 

In order to qualify for the higher maximum borrowing amount ($200 million), businesses must have entered into their loan on or before April 24, 2020 and have a remaining maturity of at least 18 months. 

These loans also mature in four years, and may be secured or unsecured, though any collateral that secures the underlying loan must secure the upsized tranche on a pro rata basis. 

Principal and interest payments are deferred for one year, with the same repayment rates as priority loans: 15% for years two and three, 70% for year four. Again, prepayments are permitted without penalty.

Main Street Expanded Loan Facility
Eligible businesses

Small or mid-size companies that:

  • Have up to 15,000 employees or up to $5 billion in revenue
  • Were established prior to March 13, 2020
  • Had existing Main Street loans on or before April 24, 2020
Min borrowing amount $10,000,000
Max borrowing amount $200,000,000
Term length 4 years 
Interest rates LIBOR + 3%
Payments Year 1: Deferred

Year 2: 15%

Year 3: 15%

Year 4: 70%

How to apply for a Main Street Lending loan

Mid-sized businesses should contact their traditional lenders or regular banks to apply for Main Street loans. However, the program is still rolling out to lenders and the Fed will likely give additional guidance regarding application status.

These financial institutions will issue the loans, working with the Fed. Lenders can also use the Main Street program to add on to existing loans for clients. 

Federal Reserve Chairman, Jerome Powell, said this of the current economic crisis: “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

How do Main Street loans differ from PPP loans?

In some ways, the Main Street Lending Program hopes to be the mid-sized equivalent of the PPP, though as of yet, demand hasn’t been nearly as high. (For reference, the first round of funding for the PPP was exhausted in less than two weeks—what the SBA described as “more than 14 years’ worth of loans in less than 14 days”). 

The PPP is also targeted towards smaller sized businesses, with fewer than 500 employees and approximately $5 million (or less) in monthly payroll costs. Plus, companies who get approved for PPP funding can qualify for up to 100% loan forgiveness. Main Street loans, on the other hand, must be repaid in full.

Both loan facilities, however, were established with low interest rates and deferred payments, so that as many businesses as possible can qualify. During this time of unprecedented economic uncertainty, small- and mid-sized businesses are looking to any and all sources for help. 

Learn more about the funding options for small and medium businesses in our COVID-19 Hub

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