As the COVID-19 pandemic continues its societal devastation as well as an economic crisis thrives in the wake, many companies throughout the US are hurting financially. In an effort to help alleviate small- and medium-sized businesses, the government Reserve is managing a program referred to as Main Street Lending Program.
This program allocated up to $600 billion in loans for businesses affected by the COVID-19. Its aim would be to give a shot within the arm towards the economy. However, not all businesses qualify — many small businesses find it difficult to meet the program’s stringent requirements.
To help enable you to get as well as your business up to date on which this all entails, below is our guide around the Main Street Lending Program, as organized by the Fed.
What Is The Main Street Lending Program?
The Main Street Lending Program was announced by the Federal Reserve in March 2022 in an effort to support small-to-medium sized businesses affected by the economical crisis surrounding COVID-19. At the begining of April, guidelines for the program were officially revealed.
“The Fed’s role is to provide just as much relief and stability as possible during this period of constrained economic activity, and our actions today will help be sure that the eventual recovery is really as vigorous as you possibly can,” Federal Reserve Chairman Jerome Powell said in a statement in the launch of the program’s guidelines.
The Fed later expanded the definitions of the program right at the end of April to include an additional loan option, lowered minimum loan size, and expanded eligibility requirements for businesses.
While the program is separate from those run through the Small Business Administration — such as the Paycheck Protection Program (PPP) or Economic Injury Disaster Loans — it still has some similarities (mainly the businesses works with local lenders to originate the loans and never the federal government). This program also functions as a potential option to the above-mentioned programs offered by the SBA.
How The Main Street Lending Program Works
Note: On June 21, the Fed expanded this program for greater accessibility. The tweaks included adjusting the potential size of the loans as well as lengthening term lengths. The numbers below happen to be updated to mirror the Fed’s recent changes.
2nd Note: On October 30, the Fed expanded this program further. These changes included decreasing the minimum loan size and easing debt restrictions for businesses participating in the PPP program. The numbers below have been updated again to reflect the Fed’s recent changes.
Here’s the way the Main Street Lending Program are operating in a nutshell: A company applies through a bank for a financial loan. Once the loan is approved by the financial institution, the Fed purchases 95% from the loan through a special purpose vehicle (SPV) setup by the Fed Bank of Boston.
These loans don’t suit every business — they vary in dimensions between $100,000 and $300 million. These loans must also possess a term of five years. Additionally — unlike loans given out under the PPP — Main Street loans aren’t forgivable. Instead, businesses that remove a loan under this program will be necessary to pay it back entirely.
The program itself includes three different types of loans, referred to as “facilities”:
- The Main Street New Loan Facility: Allows eligible lenders to increase unsecured or secured term loans to businesses on or after April 24, 2022. How big the loan can’t exceed $35 million or 4x the business’s adjusted 2022 earnings before interest, taxes, depreciation, and amortization (EBITDA). Minimum loan dimensions are $100,000.
- The Main Street Priority Loan Facility: Allows eligible lenders to increase unsecured or secured term loans to businesses on or after April 24, 2022. How big the borrowed funds can’t exceed $50 million or 6x the business’s adjusted 2022 EBITDA. Minimum loan size is $100,000.
- The Main Street Expanded Loan Facility: Allows lenders to improve existing term loans or lines of credit designed to businesses before April 24, 2022. How big the borrowed funds can’t exceed $300 million, 35% of remarkable and available debt, 6x the business’s adjusted 2022 EBITDA when put into outstanding and available debt. Minimum loan size is $10 million.
The Fed set the total combined size of the 3 loan options at $600 billion initially. Through funding in the CARES Act, the Department of the Treasury provided $75 billion in equity to the Main Street Lending Program.
Main Street Lending Program Eligibility Requirements
The Main Street Lending Program is geared towards small- and medium-sized businesses. Per the Fed’s FAQs sheet, an eligible business must:
- Have been established sooner than March 13, 2022
- Not be an ineligible business, based on SBA regulations
- Have 15,000 or fewer employees or annual revenues of $5 billion or less in 2022
- Have been created or organized in the US
- Only take part in one of the Main Street facilities as well as not participate in the Primary Market Corporate Credit Facility
- Not have received specific support pursuant towards the CARES Act (specifically Subtitle A of Title IV for air carriers, air cargo, and businesses important to national security)
- Be able to meet every certification and covenant required by the Main Street Lending program
It is worth noting which should a company took advantage of the PPP, they are still permitted to apply for a Main Street loan, based on a press release published by the Fed on April 9. PPP loans totaling less than $2 million may be excluded in the Fed’s “existing outstanding and undrawn available debt” calculation. For more on that check out the Fed’s FAQs sheet.
On top of the above requirements, the Fed further produced in the linked pr release those trying to get Main Street loans “must commit to make reasonable efforts to keep payroll and retain workers.” Additionally, compensation, stock repurchase, and divided restrictions for direct loan programs outlined by the CARES Act must be followed by Main Street loan borrowers.
Where You can aquire a Main Street Loan
Similar to the PPP, loans using the Main Street Lending Program originate at local banks. This means that if you need a loan under this program, you’ll need to apply using your local lender.
Specifically, the Fed has designated “eligible lenders” as US insured depository institutions, US bank holding companies, US savings and loan holding companies, and US intermediate holding companies of foreign banking organizations. There isn’t a complete listing of approved lenders currently, so if you're thinking about this program, we recommend contacting your local lender to see if they give away Main Street loans.
Other Resources If The Main Street Lending Program Isn’t The Right Fit
Because the Main Street Lending Program targets businesses that need loans with a minimum of $100,000, many small businesses might be left hung out to dry with this particular program. There are a number of other loan resources available to small businesses impacted by the COVID-19. You may additionally find relief through small company grants for coronavirus relief.
