The Main Street Lending Program
There is no doubt that the COVID-19 situation seems to change with each and every day. The disruption and chaos that the pandemic has injected into both daily life and business is mirrored in the government’s response.
In this article, we’ll turn our attention to an overlooked area of the government’s pandemic response and how businesses can use a whole new lending platform to navigate the choppy waters.
As the pandemic continues, you will want to be aware of the Main Street Lending Program, which is a whole new lending platform. The Federal Reserve established the Main Street Lending Program to support lending to small and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. Authorized under the Coronavirus Aid, Relief & Economic Security (CARES) Act, the Main Street Lending Program is quite attractive for an array of reasons. Let’s take a closer look at what makes this program almost too good to be true.
This lender-delivered program is a commercial loan. Unlike the PPP, there is no forgivable component. However, the Main Street Lending Program has one feature that makes it attractive to all kinds of businesses. It can be used to refinance existing debt at a rate of around 3%. However, businesses cannot refinance existing debt with the current lender. Instead, a new lender must be found. Generally, loans are a minimum of a quarter-million dollars and have a five-year term. Another attractive feature, there is a two-year payment deferment period. There is no penalty for prepayment.
To be eligible for a Main Street Lending Program loan, a business must:
- Have been established before March 13, 2020
- Not be an ineligible business according to Small Business Administration (SBA) regulations
- Have no more than 15,000 employees or 2019 annual revenues of no more than $5 billion
- The SBA’s affiliation rules apply in determining the employee and revenue count
- In counting employees, the Main Street Lending Program advises businesses to refer to SBA regulations by counting all full-time, part- time, seasonal, or otherwise employed persons, excluding volunteers and independent contractors
- Have been created or organized in the U.S. with significant operations in and a majority of its employees based in the U.S.
- Not also participate in one of the other Main Street loan facilities, as well as the Primary Market Corporate Credit Facility
- Note: Businesses that received support through the SBA Paycheck Protection Program (PPP) are eligible to receive a Main Street loan
- Not have received specific support pursuant to the CARES Act (Subtitle A of Title IV for air carriers, air cargo, and businesses critical to national security)
The Main Street Lending Program is not just for refinancing existing debt. Lenders make the loans and then sell 95% of the loan value to the Fed. This of course means that the lender is only required to retain 5% of the loan on their balance sheet. The end result is that lenders can dramatically expand the amount of loans they can make.
Whether it is the PPP or a program like the Main Street Lending Program, there are solid options available to help you. Businesses looking to restructure debt or put an infusion of cash to good use may find that the program offers a very flexible loan with great interest rates.
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