NLBMDA MEMBER ALERT:
Main Street Lending Program Summary
Important Notice: The information contained in this summary is meant to provide the currently available guidance to members about this program. It is not meant to provide any legal or accounting advice. Members should utilize the Additional Information links available, or contact their lenders for more specific information.

The Federal Reserve has announced that it is establishing a Main Street Lending Program (Program) to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The Program will operate through three “facilities”: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF).

The Program was established to respond to uncertainty related to the COVID-19 pandemic and is authorized to purchase participations in MSNLF Loans, MSPLF Loans, and MSELF Upsized Tranches until September 30, 2020.

Note: Lenders are not currently accepting applications yet for this program and no date has been announced.

Background
In the Main Street program, simply meeting the Federal Reserve's criteria as an eligible borrower will not entitle an applicant to be approved or to receive the maximum allowable loan amount, unlike other relief programs. The ultimate decision whether to extend credit to the applicant will rest with the lender. 

If a lender approves the applicant for a Main Street loan, then the lender will originate and fund the loan. The lender will then be able to sell a participation in the loan (85% or 95% depending on the applicable Main Street facility) at par to a special purpose vehicle established by the Federal Reserve. The lender will retain the remaining interest in the loan and will service the loan.

Eligible Borrowers

Basic Eligibility

An eligible borrower must be a for-profit business that:
  • was established prior to March 13, 2020;
  • was created or organized in the United States or under the laws of the United States;
  • has "significant operations in" the United States; and
  • has a "majority of its employees based in" the United States.

Note: Legislation and regulatory text to date suggests that a party who otherwise meets these criteria would be disqualified from participating solely because it has a non-U.S. parent company.

Size Test

An eligible borrower must meet  at least one  of the following two size tests.

  1. Employee Count. The borrower and all of its affiliates together had 15,000 or fewer employees based on the average total number of employees for each pay period over the 12 months prior to origination of the Main Street loan. Businesses should count as employees all full-time, part-time, seasonal or otherwise employed persons, excluding volunteers and independent contractors.
  2. Revenue. The borrower and all of its affiliates together had 2019 annual revenues of $5 billion or less. The Federal Reserve guidance provides alternative methodologies to determine revenues for this purpose, allowing reliance on either 2019 audited financial statements in accordance with GAAP or annual receipts for 2019 as reported to the Internal Revenue Service (IRS). The Federal Reserve guidance to date does not indicate a methodology to be used if neither of these sources is applicable (e.g., unaudited financial statements, non GAAP accounting or receipts not required to be reported to the IRS).

Application Process
To obtain a loan under the Program, an Eligible Borrower must submit an application and any other documentation required by an Eligible Lender to such Eligible Lender. Eligible Borrowers should contact an Eligible Lender for more information on whether the Eligible Lender plans to participate in the Program and to request more information on the application process.

Updates regarding the Program will be made available on the Fed’s Main Street page .

Restrictions on Compensation

A business receiving a Main Street Lending Program loan must comply with certain compensation restrictions while the loan is outstanding and for one additional year.

1.      No Increases for Employees Above $425,000: An officer or employee of the borrower whose total compensation exceeded $425,000 in calendar year 2019 may not receive:
  • total compensation from the borrower during any 12-consecutive-month period exceeding the total compensation that individual received in calendar year 2019, or
  • severance pay or other benefits upon termination of employment exceeding twice the total compensation that individual received in calendar year 2019. This limitation does not apply to employees whose compensation is determined through an existing collective bargaining agreement entered into prior to March 1, 2020.

2.      Cutback for Employees Above $3 Million: An officer or employee of the borrower whose total compensation exceeded $3 million in calendar year 2019 may not receive total compensation from the borrower during any 12-consecutive-month period in excess of the sum of $3 million plus 50% of the total compensation over $3 million the individual received in calendar year 2019.

Recipient Efforts to Maintain Payroll and Retain Employees
Guidance released on the Program states that a borrower "should make commercially reasonable efforts to maintain its payroll and retain its employees during the time the [Main Street loan] is outstanding.” The guidance goes on to say that a borrower should "undertake good-faith efforts to maintain payroll and retain employees, in light of its capacities, the economic environment, its available resources, and the business need for labor.”

It is unclear what form this requirement may take in the definitive documentation of Main Street loans.

Required Certifications for Borrowers
  • Refrain from using proceeds of eligible loans to repay any other loans, unless a payment is mandatory and due. However, for loans issued under the Priority Loan Facility, the borrower may, at the time of origination, refinance existing debt owed to another lender.
  • Commit that it will not seek to cancel/reduce any outstanding credit lines.
  • Certify that it has a reasonable basis to believe that as of the date or the loan (and after giving effect to the loan) it will be able to meet its obligations for at least the next 90 days and does not expect to file for bankruptcy in that time period.
  • Commit that it will follow the one-year post-repayment restrictions on compensation, share repurchases, and capital distributions set forth in the CARES Act (except that S Corporations or other tax pass-through entities may make distributions to the extent reasonably required to cover equity holder tax obligations in respect of the entity’s earnings).
  • Certify that it is eligible to participate in the MSLP, including compliance with conflicts of interest prohibitions contained in the CARES Act.
  • Commit to use commercially reasonable efforts to maintain payroll and retain employees.

Public Reporting
Applicants and recipients should note that the Federal Reserve has stated it will follow extensive reporting procedures around the Main Street Lending Program by reporting on a monthly basis:

  • Names and details of participants in each program;
  • Amounts borrowed and interest rate charged;
  • Overall costs, revenues, and fees for each facility.

Loan Options
Below is a table illustrating the differences between the three loan options available under the program:  
Source: U.S. Chamber of Commerce

Additional Information
Members seeking additional information about the program should contact their lender to discuss specific eligibility and term concerns.
The resources below are provided by the government and provide additional levels of detail:

For questions, please contact NLBMDA Director of Government Affairs, Kevin McKenney at kevin@dealer.org