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KSM Blog | Katz, Sapper & Miller CPA

Federal Reserve Begins Main Street Lending Program

Posted 7:15 PM by

The long-awaited Main Street Lending Program (MSLP) is now underway. The Federal Reserve opened lender registration on June 15 and encouraged lenders to begin making Main Street program loans as soon as possible upon registration, though the Federal Reserve is still expanding the infrastructure needed to fully operationalize the program to loan applicants.

The $600 billion program, which is designed to support lending to small and midsize businesses, was first introduced two months ago, but it was quickly overshadowed by the Paycheck Protection Program’s forgivable loans. Since then, the proposed loan options and terms have undergone multiple revisions in response to feedback from the business community.

Businesses may receive a MSLP loan in addition to their PPP loan. However, unlike PPP loans, MSLP loans are full-recourse loans, and no amount of the loans are forgivable.

The MSLP is generally comprised of three types of loans:

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

The following is an overview of the three loan types. While the list is not a comprehensive explanation of all of the eligibility requirements, terms, and conditions, this overview highlights just a few of the most significant differences.

Business Eligibility Requirements

In order to participate in the MSLP, a business must meet each of the following requirements.

  • Has 15,000 employees or fewer or has 2019 annual revenues of $5 billion or less
  • Is not an “ineligible business” (See 13 CFR 120.110, as modified by regulations of PPP on or before April 24, 2020.)
  • Is organized in the United States as of March 13, 2020, with significant operations in and a majority of its employees based in the United States
  • Utilizes only one type of MSLP loan and does not participate in the Primary Market Corporate Credit Facility
  • Has not received specific support pursuant to Subtitle A of Title IV of the Coronavirus Aid, Relief, and Economic Security (CARES) Act
  • Is able to make all of the certifications and covenants required under the program

Nonprofit organizations are not currently eligible for the MSLP, but the Federal Reserve recently proposed expanding the program to include them.

Key Terms and Conditions

  • Five-year maturity
  • Principal payments deferred for two years and interest payments deferred for one year (Unpaid interest will be capitalized.)
  • Adjustable rate of LIBOR (one- or three-month) plus 300 basis points
  • Principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at maturity at the end of the fifth year
  • No prepayment penalty
  • Origination fee (Additional fees may apply.):
    • MSNLF and MSPLF: 1%
    • MSELF: 0.75%
  • Loan size:
    • MSNLF – New loans that may be secured or unsecured but may not be junior in priority to other unsecured debt
      • Minimum: $250,000
      • Maximum: Lesser of 1) $35 million or 2) four times 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA)
    • MSPLF – New loans (secured or unsecured) that may be used to refinance existing debt and that, in terms of priority and security, must be senior to or pari passu with borrower’s other loans (including secured loans), other than mortgage debt
      • Minimum: $250,000
      • Maximum: Lesser of 1) $50 million or 2) six times 2019 EBITDA
    • MSELF – Increase size of existing loans (generally secured) that, in terms of priority and security, must be senior to or pari passu with borrower’s other loans (including secured loans), other than mortgage debt
      • Minimum: $10 million
      • Maximum: Lesser of 1) $300 million or 2) six times 2019 EBITDA
  • Significant borrower certifications:
    • Until the date that is 12 months after the date on which the loan is no longer outstanding, the borrower agrees to the following:
      • Borrower will not pay dividends or make other capital distributions with respect to the common stock of the business except that pass-through entities may make distributions to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.  
      • Officers or employees with total compensation over $425,000 in calendar year 2019 shall not receive total compensation in excess of what was received by the officer or employee in calendar year 2019. Severance pay or other benefits received upon termination shall not exceed twice the total compensation received by the officer or employee in calendar year 2019.
      • Officers or employees with total compensation over $3 million in calendar year 2019 shall not receive total compensation that exceeds the sum of $3 million plus 50% of the excess over $3 million of what was received in calendar year 2019.
    • Borrower will not use the loan proceeds to refinance or prepay other loan balances (except MSPLF may refinance debt at time of loan origination).
    • Borrower is unable to secure adequate credit accommodations from other banking institutions.
    • Borrower should make commercially reasonable efforts to maintain its payroll and retain its employees during the time the loan is outstanding.
    • Borrower has a reasonable basis to believe that as of the date of origination of the loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.

Once the program has operational structure in place, businesses can apply by contacting an eligible lender. It is important to note that the MSLP is scheduled to last until Sept. 30, 2020.

If you have any questions about these loan programs, please contact your KSM advisor or complete this form.

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About Katz, Sapper & Miller
KSM is a nationally recognized consulting, tax, and audit firm. Through our deep experience across multiple disciplines and industries, we leverage emerging technologies, combined with our people’s differing perspectives, ingenuity, and creativity, to help our clients solve their most difficult challenges.

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