MAIN STREET LENDING PROGRAM
(Editor's Note: All information included herein is as of April 21, 2020)
As you may have heard, the PPP & EIDL loans are currently on hold pending further congressional action. There was another lending program included in the CARES Act, the Main Street Lending Program (MSLP), that has not received as much attention as the other loans, and the Federal Reserve is still working on the specifics and application process. The MSLP provides for up to $600 billion in loans to small and midsize businesses. This program opens up funding to some businesses that were not eligible for the PPP; however, if you were able to obtain a PPP, you are not necessarily excluded from the MSLP.
There are two facilities under the MSLP program. The Main Street New Loan Facility (MSNLF) is for unsecured new term loans originating on or after April 8, 2020. The Main Street Expanded Loan Facility (MSELF) applies to existing secured or unsecured loans originated before April 8, 2020. Although the application is not yet available and there are still final regulations to be published, here is what we know as of now.
- The MSLP will be run through banks
- Loans are available to U.S. companies with up to 10,000 employees or less than $2.5 billion in 2019 revenue that were in good financial standing prior to COVID-19
- Loans will have a 4-year term with principal and interest payments deferred for 12 months
- The interest rate will be adjustable at the Secured Overnight Financing Rate (SOFR) plus 250 to 400 basis points
- No prepayment penalty
- MSNLF - No collateral required
- MSELF - Will include the same collateral securing the existing loan on pro rata basis.
- Minimum loan amount = $1,000,000
- Maximum loan amount:
- MSNLF - the lesser or $25,000,000 or an amount, when added to the borrower's existing outstanding and committed but undrawn debt, is not more than 4x the borrower's 2019 Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
- MSELF - the lesser of $150,000,000, 30% of existing outstanding and committed but undrawn bank debt, or an amount, when added to the borrower's existing outstanding and committed but undrawn debt, is not more than 6x the borrower's 2019 EBITDA
- Borrowers must make "reasonable efforts" to maintain their payroll and retain employees during the term of the loan
- Borrowers must commit to not using funds to repay or refinance preexisting loans and lines of credit
- Borrowers may not do any of the following for 12 months after the loan agreement commences:
- Purchase its own or parent company's equity securities listed on national securities exchange
- Pay dividends on common stock or make capital distributions
- For employees whose 2019 wages exceed $425,000, pay more than $425,000 in 12 consecutive months or pay a severance that is twice the total 2019 compensation that employee received.
- For employees whose 2019 wages exceed $3,000,000, pay more than $3 million plus 50% of their 2019 compensation in 12 consecutive months.
If you are interested in obtaining financing through the MSLP, we recommend letting your lender know soon. If we can assist you in explaining the programs' provisions, analyze the potential benefits or assist you with gathering the needed information, please call any Sponsel CPA Group Team member or our colleagues listed below.
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.