What Business Owners Need to Know About the Main Street Lending Program

June 16, 2020
Phillip Ross, Kyle Gordon and Eli Perlmutter of BBH Corporate Advisory & Banking explore the Main Street Lending Program and break down the notable components for business owners to consider following recent updates.

On April 9, 2020, the Federal Reserve announced a series of new programs under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) providing $2.3 trillion in loans to support the economy. The most anticipated of these was the Main Street Lending Program (Main Street Program), which allows small and midsized businesses to obtain loans from banks. On April 30, 2020, the Federal Reserve released new details on the Main Street Program after receiving more than 2,200 comments from individuals, businesses and nonprofits on the program’s initial terms. Key changes from the initial version include the creation of a third facility for more highly leveraged borrowers (in turn requiring a higher retention of risk by the lender), lowering the minimum loan size, adjusting the interest rate and expanding the pool of eligible borrowers. Several open questions from the initial program details were addressed in the updated term sheets and an accompanying FAQ.1

On May 27, 2020, the Federal Reserve issued an expanded FAQ that provided additional details on program implementation and addressed other matters, including lender and borrower eligibility, fees, EBITDA adjustments, participations and regulatory requirements. In addition to the updated FAQ, the Federal Reserve also provided a number of related form documents, including lender registration certifications and covenants, lender wire instructions required to become a Main Street Program lender, and borrower certifications and covenants required for participation in a Main Street loan facility.

On June 8, 2020, the Federal Reserve announced that it further modified the Main Street Lending Program to accommodate more small and medium-sized businesses seeking support. Key changes include lowering the minimum loan sizes, increasing the maximum loan sizes and extending payment terms. The program should be live for borrowers soon, as the Federal Reserve opened lender registration on June 15 and is encouraging lenders to begin making Main Street loans immediately after successfully registering.

The Main Street Program comprises three facilities – the Main Street New Loan Facility (New Loan), the Main Street Priority Loan Facility (Priority Loan) and the Main Street Expanded Loan Facility (Expanded Loan) – which collectively will provide up to $600 billion of loans. In short, businesses with up to 15,000 workers or revenues of less than $5 billion can borrow a four-year, low-interest term loan and defer principal and interest payments for the first year. However, key considerations include high upfront fees in addition to restrictions on dividend payments, distributions, stock buybacks and compensation for the life of the loan plus an additional 12 months. This article provides a summary of the New Loan, Priority Loan and Expanded Loan facilities as announced on April 9 and updated on April 30, May 27 and June 8, and also highlights several key considerations for potential borrowers.

Main Street Lending Program

The Main Street Lending Program offers borrowers three different facilities. While the facilities all carry the same eligible borrower and lender criteria, maturity, interest rate and payment deferral/prepayment features, the loan types differ in size requirements, size calculations, amortization schedule and seniority.

The New Loan and Priority Loan facilities are for loans originated after April 24, 2020, and provide unsecured or secured term debt ranging from $250,000 to $35 million under the New Loan facility and $50 million under the Priority Loan facility. The Expanded Loan facility upsizes an existing secured or unsecured term loan or revolving credit facility originated on or before April 24, 2020, and provides $10 million to $300 million of additional debt. Note that unlike the Paycheck Protection Program, these loans are not forgivable.

A newly formed special purpose vehicle (SPV) – funded by the Federal Reserve and a $75 billion investment from the Treasury – will purchase a 95% participation of loans made by lenders in facilities, and lenders will retain 5% of each loan. The SPV will stop purchasing participations in eligible loans on September 30, 2020, unless the program is extended.

Eligible lenders are U.S.-insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies. Under an Expanded Loan, only one of the lenders in the existing facility that holds an interest in the underlying loan on the date of the upsizing needs to be an eligible lender under the Main Street Program.

Eligible Borrowers

Eligible borrowers are for-profit businesses that meet at least one of the following two conditions: 15,000 employers or fewer2 or $5 billion or less in 2019 annual revenue.3  The business must be created or organized in the U.S. or under the laws of the U.S., with significant operations in and a majority of its employees based in the U.S. Borrowers must attest that they are unable to secure adequate credit accommodations from other banking institutions because the amount, price or terms of credit available from other sources are inadequate for the borrower’s needs during the current unusual and exigent circumstances. Borrowers who received PPP loans are still eligible for a Main Street Program loan. For more guidance on ineligible businesses, see the CARES Act and the Small Business Administration’s Interim Final Rule.4

It is important to note that eligibility guidelines are general requirements for the Main Street Program. Lenders are expected to apply their own underwriting standards and will ultimately determine whether a borrower is approved for a loan.

  New Loan Facility
Priority Loan Facility
Expanded Loan Facility
Origination Date
Loan Originated after April 24, 2020
  Upsized tranche of a loan that was originated on or before April 24, 2020, and has a remaining maturity of at least 18 months
Secured or unsecured - at the borrower and lender's discretion Must be secured if the borrower has any other secured loans.5 Consistent with original loan6
Seniority7 Loan is not subordinated in terms of priority to any other outstanding loans.8 Loan/upsized tranche is senior to or pari passue with, in terms of priority and security, any other outstanding loans (other than mortgage debt)
Maturity   Five Years    
Payments Interest deferred for one year and principal deferred two years    
Amoritization Years 3-4: 15% per year
Year 5: 70% baloon payment
Rate LIBOR9 (1 or 3 month) + 300 basis points (bps)    
Loan Size
  • Minimum loan size of $250,000
  • Maximum loan size is the lesser of:
    • 35 million
    • an amount that, when added to the borrowers's existing and undrawn debt10 does not exceed 4.0x 2019 EBITDA (earnings before interest, taxes, depreciation and amortization)11
  • Minimum loan size of $250,000
  • Maximum loan size is the lesser of:
    • $50 million
    • An amount that, when added to the borrower's existing and undrawn debt, does not exceed 6.0x 2019 EBITDA
  • Minimum loan size of $10 million
  • Maximum loan size is the lesser of:
    • $300 million
    • An amount that, when added to the borrower's existing and undrawn debt, does not exceed 6.0x 2019 EBITDA
  • Origination and servicing fee of 100 bps of the principal amount of the loan
  • Transaction fee of up to 100 bps12
  • No prepayment penalty
  • Upsizing and servicing fee of up to 75 bps of the principal amount of the upsize tranche
  • Transaction fee of up to 75 bps7
  • No prepayment penalty  

Borrower Attestations and Restrictions

The Main Street Program requires eligible borrowers to make the following attestations:13

  • New Loan and Expanded Loan Facility: The borrower will refrain from using loan proceeds to repay, cancel or reduce other loan balances or committed lines of credit and refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has repaid the Main Street Lending Program loan in full.
  • Priority Loan Facility: The borrower will make the same attestations required by the New Loan and Expanded Loan facilities, but, at the time of the Priority Loan origination, the borrower may refinance existing debt to a lender that is not the “eligible lender” under the Main Street Program.
  • The borrower will make commercially reasonable efforts to maintain its payroll and retain employees during the term of the loan.
  • The borrower is able to operate for the next 90 days and won’t need to file for bankruptcy in that period.
  • The borrower meets the EBITDA leverage condition.
  • The borrower is eligible to participate in the facility vis-à-vis certain conflicts of interest provisions related to Congress and Executive Department (see section 4019(b) of CARES Act).

The April 30 updates provided further clarification (see H.3 of the FAQ) on how Main Street Program Loans would interact with a borrower’s outstanding and additional debt obligations. Specifically, borrower attestations would not prohibit borrowers from repaying a line of credit in accordance with normal course of usage, taking on and paying additional debt obligations required in the normal course of business, such as inventory and equipment financing, and refinancing maturing debt.

There are also several restrictions on borrowers that extend from the loan’s origination date through the date 12 months after the loan is paid in full.

  • The business may not repurchase an equity security that is listed on a national securities exchange.14
  • The business may not pay any dividends or make other capital distributions with respect to the common stock of the business. Dividends and other capital distributions made by an S corporation or other pass-through entity to cover its owners’ tax obligations in respect of the entity’s earnings will be permitted.
  • No officer or employee of the eligible business whose total compensation15  exceeded $425,000 in calendar year 2019 can receive compensation during any 12 consecutive months greater than the amount received in 2019.16
  • No officer or employee of the eligible business whose total compensation exceeded $3 million in 2019 can receive compensation during any 12 consecutive months greater than the sum of $3 million and 50% of the excess over $3 million of the total compensation received in 2019.

As of June 8, no guidance has been provided as to how capital distribution restrictions might apply in an M&A context.

Key Considerations

The Main Street Program may appeal to eligible borrowers that are not otherwise able to secure new or expanded credit from existing lender relationships on attractive terms. Eligible borrowers should carefully consider the fees, attestations and restrictions under this program. Participation in the program is likely to be a highly individualized decision specific to each eligible borrower’s circumstances. Accordingly, eligible borrowers should work closely with their existing lenders and advisors to evaluate the Main Street Program.

On June 15, the Federal Reserve released a proposal to expand the Main Street Program to provide access to nonprofit organizations. The Treasury is seeking public feedback on the proposal until June 22. We will provide updates when finalized guidance Is released.

Please contact your BBH relationship team for further information or assistance on the Main Street Program.

1 The term sheets for each program and the FAQ can be found at https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
2 To determine eligibility based on employee count, use the average of total employees for each pay period prior to origination or upsizing of the Main Street Program loan. Treasury considers total employees to include all full-time, part-time, seasonal or otherwise employed persons, as well as employees of their affiliates (which includes businesses that are under common ownership of a private equity group), excluding volunteers and independent contractors.
3 To determine eligibility based on revenue, sum the revenues of the business and its affiliates per its 2019 GAAP audited financial statements or the annual receipts of the business and its affiliates (which includes businesses that are under common ownership of a private equity group) for 2019. If the business has not yet completed its 2019 audit, use the most recent audited financial statements.
4 More details about 13 CFR 120.110(b)-(j), (m)-(s) can be found here.
5 Other than debt secured by real property at the time of the Priority Loan’s origination and limited recourse equipment financings (including equipment capital or finance leasing and purchase money equipment loans) secured only by the acquired equipment.
6 Eligible lenders may require borrowers to pledge additional collateral to secure an upsized tranche.6 All Main Street loans must include a cross-acceleration provision that would trigger an event of default under the Main Street loan if other debt owed by the borrower to the eligible lender is accelerated.
7 All Main Street loans must include a cross-acceleration provision that would trigger an event of default under the Main Street loan if other debt owed by the borrower to the Eligible Lender is accelerated.
8 Note that New Loans cannot be contractually subordinated in terms of priority, meaning that they may not be junior in priority in bankruptcy to the eligible borrower’s other unsecured loans or debt instruments (FAQ B.3).
9 As of June 8, 1-month LIBOR rate was 0.18%, and 3-month LIBOR rate was 0.31%.
10 Debt includes committed but undrawn debt but excludes undrawn commitments that serve as a backup line for commercial paper issuance, undrawn commitments used to finance receivables or seasonal inventory, undrawn commitments that cannot be drawn without additional collateral and undrawn commitments that are no longer available due to change in circumstance.
11 Methodology used by the lender to calculate adjusted 2019 EBITDA (earnings before interest, taxes, depreciation and amortization) must be the methodology it has previously used when extending credit to the borrower or similarly situated borrowers on or before April 24, 2020.
12 Lender may pass through to the borrower the transaction fee of 100 bps (New and Priority Loans) or 75 bps (Expanded Loan) of the principal/upsize of the loan, which the lender is required to pay to the SPV fee.
13 The term sheets for each program and the FAQ can be found at https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
14 Except to the extent required under a contractual obligation.
15 Total compensation includes salary, bonuses, awards of stock and other financial benefits.
16 Severance pay or other benefits upon termination of employment that exceeds twice the maximum total compensation received in calendar year 2019.

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