Main Street Lending Program Relief Measures

Practice Areas

By Hooman Yavi

The Federal Government launched the Main Street Lending Program to provide relief loans for businesses impacted by the COVID-19 pandemic. This program is aimed at helping businesses that may not have qualified for Paycheck Protection Program (PPP) loans.

What is the Main Street Lending Program?

A $600 billion low interest loan program designed to fill in the gaps in the SBA Paycheck Protection Program, to provide liquidity to businesses that did not qualify for a PPP loan.

Who Qualifies?

Businesses with fewer than 10,000 employees and revenue of less than $2.5 billion a year.

What loans are available, and through whom?

Loans, ranging in size from $1 to $25 million, will be available through FDIC-insured depository institutions.

Is there any forgiveness opportunities?

Unlike the PPP loan, the Main Street Lending Program must be paid back

What are the basic terms?

According to the federal reserve, loans will have the following features:

  1. Four-year loan term
  2. Principal and interest amortization deferral for one year
  3. Adjustable rate based on the Secured Overnight Financing Rate (SOFR) plus 250-400 basis points
  4. $1 million minimum loan amount
  5. Maximum loan amount is the lesser of (i) $25 million or (ii) an amount that is less than four times the borrower’s 2019 earnings (pre interest, taxes, depreciation, and amortization [EBITDA]) once it is added to the borrower’s outstanding unpaid debt and unused credit available
  6. No prepayment penalty
  7. Facility fees of 100 base points of 95% of the principal amount
  8. Lender origination fee of 100 base point of 100% of the principal amount

Are there any restrictions on the loan?

  1. Borrowers must commit to not using the loan proceeds to repay other loans.
  2. Borrowers must attest that the loan is required due to COVID-19 related financial issues, and that they will make a reasonable effort to retain employees during the loan term and maintain payroll expenditures.
  3. Borrowers must attest that they meet the EBITDA leverage condition.
  4. Borrowers cannot repurchase an equity security from their company or any parent company that is listed on a national securities exchange while the loan is outstanding up until 12 months after it is paid off, unless it is required under a contractual obligation that was in effect when the CARES Act was enacted.
  5. Borrowers cannot pay dividends or make other capital distributions from their common stock up until 12 months after the loan paid off, unless waived by the U.S. Treasury.
  6. During the period beginning on the loan agreement execution date and ending one year after the loan or guarantee is paid off, borrowers must meet the following conditions:
    1. Officers or employees with total compensation above $425,000 for calendar year 2019 (other than those whose compensation is determined through a collective bargaining agreement existing before March 1, 2020) must not:
      1. Receive total compensation from the borrower that exceeds their 2019 calendar year compensation during any 12 consecutive months
      2. Receive severance pay or other termination benefits from the borrower that exceeds twice their maximum total compensation in calendar year 2019
    2. Officers or employee who received an excess of $3 million in total compensation during calendar year 2019 may not receive total compensation that exceeds the sum of (i) $3 million plus (ii) 50 percent of the excess over $3 million in the total compensation that the individual received in calendar year 2019 during any four consecutive months of the period described above

Note that “total compensation” includes the salary, stock awards, bonuses, and other financial benefits provided by a borrower to their officers or employees.

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