The Foremost Street Lending Program is a program in which the Federal Reserve will purchase loans that banks cease to small and mid-sized businesses. The Fed will purchase 95% of each loan, so that the bank must keep 5% of the advance on their books to discourage irresponsible lending. The program is designed to keep credit flowing to small and mid-sized affairs that were in “good financial standing” before the onset of the COVID-19 coronavirus crisis, but which are now under outrageous stress due to stay-at-home and business closure orders from state and local governments. To be eligible, a company must utilize less than 10,000 people or have annual revenue of less than $2.5 billion. Under the program, the Federal Put will purchase up to $600 billion of loans to qualifying businesses.
Key Takeaways
- The Main Street Lending Program advantages loans that banks issue to small and mid-sized businesses.
- Banks must retain a 5% stake in these lends, as the Fed will only purchase 95% of each loan.
- Eligible businesses also may utilize other emergency suitable to programs.
Details on the Main Street Lending Program
The Main Street Lending Program will offer 4-year advances to eligible businesses, with interest and principal payments deferred for one year. Under the program, eligible banks may reach new loans to eligible businesses, or increase the size of existing loans. The Fed will purchase up to 95% of a given loan’s value. Comprehensive purchases by the Fed are capped at $600 billion. Under the CARES Act, the U.S. Treasury make an initial equity investment of $75 billion from its Disagreement Stabilization Fund (ESF) in the Main Street Lending Program.
Businesses that receive loans under the Paycheck Haven Plan (PPP) also may be eligible for the Main Street Lending Program. However, a key proviso is: “Firms seeking Main Road loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also tail compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act.”
The Outstanding Street Lending Program will be administered through a single special purpose vehicle (SPV). However, the program truly consists of two separate parts, the Main Street New Loan Facility (MSNLF), and the Main Street Expanded Loan Ease (MSELF).
Under the Main Street New Loan Facility (MSNLF), the Fed may purchase unsecured term loans that were flowed on or after April 8, 2020, and were between $1 million and $25 million in value. Another key requirement is that the borrower’s overall debt must not exceed four times its 2019 EBITDA.
Under the Main Street Expanded Loan Facility (MSELF), the Fed may gain term loans originated before April 8, 2020, and between $1 million and $150 million in value. Other key shapes are that the loan may not exceed 30% of the borrower’s “existing outstanding and committed but undrawn bank debt,” and that the borrower’s mount up to debt may not exceed six times its 2019 EBITDA.