The Main Street Lending Program was approved as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Congress intended the program to provide another source of loans to small and medium-sized businesses.
On April 9, 2020, the Federal Reserve issued Term Sheets for the Main Street Lending Program (pdf) to provide clarity for borrowers and lenders. Businesses interested in the program should note two key points:
1. Loans made under the Main Street Lending Program are not forgivable.
2. Businesses that have taken advantage of the PPP may also take out a Main Street Loan.
What businesses qualify as an Eligible Business (EB)?
- A Main Street Loan is available to any United States business with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues.
- Each EB must be created or organized in the United States or under the laws of the United States.
- The EB must have significant operations in and a majority of its employees based in the United States.
How much can an EB borrow?
- The minimum loan amount is $1 million.
- For loans that originated on or before April 8, 2020, the maximum loan cannot exceed the lesser of (i) $150 million, (ii) 30% of the EB’s existing undrawn bank debt, or (iii) an amount that, when added to the EB’s existing outstanding and committed but undrawn debt, does not exceed six times the EB’s 2019 EBITDA.
- For loans that originated on or after April 8, 2020, the maximum loan size cannot exceed the lesser of (i) $25 million or (ii) an amount that does not exceed four times the EB’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA) when added to the EB’s existing undrawn debt.
What are the other loan terms?
- The Main Street Loan is an unsecured, four-year term loan with no prepayment penalty.
- Amortization of principal and interest is deferred for one year.
- There is an adjustable interest rate based on the Secured Overnight Financing Rate + 250-400 basis points.
- Any bank, U.S. insured depository institution, or U.S. savings and loan company may be a lender.
What are the Loan Requirements and Restrictions?
- The EB must attest that the economic conditions as of the application date the loan request is necessary to support the EB’s ongoing operations.
- The EB is created or organized in the U.S. or under the laws of the U.S., domiciled in the U.S. and has significant operations in and a majority of its employees based in the U.S.
- The EB is not a debtor in a bankruptcy proceeding.
- The EB cannot use the Main Street Loan to repay or refinance pre-existing loans or lines of credit made by the lender to the EB.
- The EB cannot seek to cancel or reduce any of its outstanding lines of credit with the lender or any other lender, and the lender cannot cancel or reduce any of the borrower’s existing lines of credit.
- Until the Main Street Loan is repaid in full, the EB cannot repay or refinance other debt of equal or lower priority except mandatory principal payments.
- The Main Street Loan funds received will be used to retain at least 90% of the EB’s workforce, at full compensation and benefits, until September 30, 2020.
- The EB intends to restore no less than 90% of the EB’s workforce that existed as of February 1, 2020, including the restoration of all compensation and benefits to the EB’s workers no later than 4 months after the termination date of the COVID-19 public health emergency.
- While the Main Street Loan is outstanding and for one full year after completing repayment, the EB will not pay dividends or repurchase any equity security that is listed on a national securities exchange of the recipient’s stock or its parent company’s stock.
- The EB will not outsource or offshore jobs for the term of the Main Street Loan plus two years after completing repayment.
- The EB will not rescind existing collective bargaining agreements for the term of the Main Street Loan plus two years after completing repayment.
- The EB will remain neutral in any union organizing effort for the term of the Main Street Loan.
Employee Compensation Limitations
The total compensation of officers and employees is limited while the loan is outstanding and for one full year after completing repayment. Total compensation includes salary, bonuses, awards of stock, and other financial benefits provided by the EB to an EB officer or employee.
- No EB officer or employee whose total compensation exceeded $425,000 in calendar year 2019:
- Will receive more than what such officer or employee, received in total compensation from the EB in calendar year 2019; or
- Will receive from the EB severance pay or other benefits upon termination of employment which exceeds twice the maximum total compensation received by the officer or employee from the EB in calendar year 2019.
- No officer or employee of the EB whose total compensation exceeded $3,000,000 in calendar year 2019 may receive total compensation in excess of the sum of:
- $3,000,000; and
- 50 % of the excess over $3,000,000 of the total compensation received by such officer or employee from the EB in calendar year 2019.
What are the Loan fees?
- Facility Fee: The lender may require the borrower to pay a facility fee of 1% of the principal amount of the Main Street Loan participation purchased by a Single Purpose Vehicle.
- Loan Origination Fee: The borrower must pay the lender an origination fee of 1% of the principal amount of the Main Street Loan.
- Loan Servicing Fee: The borrower must pay the lender an annual service fee of .25% of the principal amount of the Main Street Loan.
The Main Street Lending Program may be a good option for many small and medium-sized businesses. If you have questions about whether your business can benefit from the program, the attorneys in the Woods Rogers Business & Corporate practice are ready to help.