Main Street Lending Program

Practice Areas

By Pooja Srivastava

The Main Street Lending Program (MSLP) is designed to help small and medium-sized businesses maintain payroll and operations during the coronavirus (COVID-19) pandemic. It complements other US government loan programs like the Payroll Protection Program (PPP) for smaller businesses and the Primary Market Corporate Credit Facility (PMCCF) for larger businesses.

The federal US government has developed three types of Main Street Loan Program loans to address different types of business needs:

  • The Main Street New Loan Facility (MSNLF)
  • Main Street Priority Loan Facility (MSPLF)
  • Main Street Expanded Loan Facility (MSELF)

MSNLF and MSPLF loans have a minimum loan amount of $500,000 and a maximum of $10 million. MSELF features the largest loan amount of the three MSLP loans, with loans ranging from $10 million to $200 million. The loan amount awarded varies based on a borrower’s individual circumstances. MSELF allows borrowers to expand previous loans or financing from before April 24, 2020, while MSNLF and MSPLF originate new loans on or after that date.

Borrowers cannot receive more than one type of MSLP loan, and they also do not qualify for MSLP loans if they have already received funding from programs like Coronavirus Economic Stabilization Act of 2020 (CESA) and Primary Market Corporate Credit Facility (PMCCF). However, borrowers who have applied for and received Paycheck Protection Program (PPP) funding can still qualify for MSLP loans.

Payment on all three MSLP loans can be deferred for one year, with the remaining balance due during years two through four. With MSNLF, borrower payments on interest and principal are equally split with 33% due each year. For MSPLF and MSELF, years two and three feature 15% payment, while year four has 70% of the loan amount due.

Main Street Lending Program (MSLP) Loans

Comparative Chart

  The Main Street New Loan Facility (MSNLF) Main Street Priority Loan Facility (MSPLF) Main Street Expanded Loan Facility (MSELF)
Criteria for Eligible Borrowers Companies must meet at least one of the conditions for eligibility:

i.       15,000 or fewer employees, or

ii.      $5 billion or less annual revenue in 2019

In addition, companies must meet all the following conditions:

·         US business with significant operations in and most of its employees based in the US

·         Meets lender-specific underwriting standards

·         Must not be an ineligible business**

Eligible Lenders ·         US federally-insured depositories, US banks, or US savings and loan holding companies

·         US branch or an intermediate US-based holding company of a foreign bank

Term 4 years
Minimum Loan Amount $500,000 $10 million
Maximum Loan The lesser amount of:

(i)                 $25 million, or

(ii)              an amount that  does not exceed four times the borrower’s EBITDA (earnings before interest, taxes, depreciation and amortization) when added to their existing outstanding and undrawn available debt

The lesser amount of:

(i)                 $25 million, or

(ii)              an amount that does not exceed six times the borrower’s EBITDA when added to their existing outstanding and undrawn available debt

The lesser amount of:

(i)                 $200 million, or

(ii)              35% of the borrower’s total outstanding and undrawn debt, or

(iii)            an amount that does not exceed six times the borrower’s EBITDA when added to their outstanding and undrawn available debt

Loan Participation Purchased by Federal Reserve 95% 85% 95%
Payment Terms Borrowers can defer the first year of the loan’s principal and interest payments (unpaid interest is capitalized, which means it is added to the loan balance and interest will be owed on interest). Borrowers must pay off the loan in four years:

MSNLF: Allowed to defer the first year of principal and interest payments – unpaid interest is capitalized up to 33.33% by the end of year 3.

MSPLF & MSELF: Allowed to defer the first year of principal and interest payments – unpaid interest is capitalized up to 70% by the end of year 3.

Prepayment No penalty
Interest Rate London Inter-bank Offered Rate (LIBOR) + 3%
Collateral May be secured or unsecured May be secured or unsecured, however collateral that secures the underlying loan must secure the upsized tranche on a pro rata basis
Transaction Fees Total loan fees include:

·         1% of principal

·         Additional loan origination fee

·         Service fee

Total loan fees include:

·         0.75% of principal

·         Additional loan origination fee

·         Service fee

Termination The MSLP will stop issuing new loans to eligible borrowers on September 30, 2020, unless the Board and the Department of the Treasury extend the programs. The Reserve Bank will continue to fund these loan programs after that date until the MSLP underlying assets mature or are sold.
Restrictions Borrowers cannot receive a loan from MSLP if they already have any of the following funding: (1) another MSLP loan, (2) the Primary Market Corporate Credit Facility, or (3) Coronavirus Economic Stabilization Act of 2020 (CESA)
Other loan restrictions 1.      Executive compensation must be below $425,000. There are also restrictions on stock repurchases and declaring dividends.

2.      There is no buy back of stock for public companies.

3.      Eligible borrowers must attest that they will not seek to cancel or reduce any of their outstanding lines of credit.

4.      Borrowers are financially strong enough to continue operations for 90 days, and they will not file for bankruptcy during this period.

5.      They must refrain from repaying other loan balances (except for mandatory payment obligations in the case of the MSPLF)

Employee Retention

 

Companies must make reasonable efforts to maintain their payroll and retain employees while the loan is outstanding.
Loan Priority MSNLF loans cannot be contractually subordinated in priority to any other debt MSPLF loans must be senior to or equivalent with (parri passu) all other debt, other than mortgage debt, in terms of priority and security The upsized tranche (an underlying debt instrument) must be senior to or equivalent with (parri passu) all other debt other than mortgage debt, in terms of priority and security

ineligible business for the main lending program**

Certain businesses are not eligible for the Main Street Lending Program. These include:

  • Nonprofit organizations
  • Financial services businesses that primarily provide loans, such as banks and finance companies (certain pawn shops may qualify)
  • Developer or landlord-owned passive businesses that do not actively use the assets from the loan proceeds
  • Life insurancebusinesses
  • Companies headquartered in foreign countries (US-based companies owned by foreign nationals may still qualify)
  • Pyramid sales-oriented businesses
  • Businesses that earn more than one-third of their gross annual revenue from legal gambling
  • Businesses participating in illegal activity, such as cannabis businesses (which are illegal at the federal level)
  • Private clubs and businesses that limit memberships based on factors other than capacity

Government-owned entities (does not included businesses owned by Native American tribes)

Religious-oriented businesses that principally teach, instruct, counsel, or indoctrinate religion, regardless of the setting

  • Businesses that earn more than one-third of their gross annual revenue from packaging SBAloans
  • Companies with an associate that is on probation or parole, is incarcerated, or has been indicted for a felony or a crime of moral turpitude
  • Companies where a lender, Certified Development Company (CDC), or their associates own an equity interest
  • Businesses that:
    1. Put on sexual live performances, or
    2. Earn more than de minimisgross revenue, either directly or indirectly, from the sale of sexual products or services, or the presentation of sexual depictions or displays
  • Businesses that have previously caused SBA, the federal government, its agencies, or departments, to take a loss in their programs because they defaulted on federal loans or financing (unless waived by the SBA), or associates that previously owned, controlled, or operated such a businesses
    • This includes compromise agreements
  • Political or lobbying-oriented businesses

Speculative businesses (such as oil wildcatting)

Conclusion

Main Street Lending Program (MSLP) loans can provide much-needed financial support for companies to stay afloat during the coronavirus pandemic. For help applying for an MSLP loan, contact a trusted Chugh CPAs, LLP professional.