On June 8, 2020, the Federal Reserve posted updated terms for its Main Street Lending Program (the "Program"), which will further support eligible small and medium-sized businesses with their operating and payroll expenses during the ongoing COVID-19 pandemic. The Program was initially announced in April 2020. The updated terms will increase the number of businesses eligible to access Program-sponsored loans. Under the Program, qualified lenders will make loans to eligible borrowers in compliance with Program requirements. A special purpose vehicle established by the Federal Reserve will purchase 95% of each loan from the lender that originated the loan.

Eligible borrowers will include businesses that either (i) employ no more than 15,000 employees or (ii) did not have more than $5 billion in 2019 annual revenue. Borrowers must satisfy at least one of these criteria, but not both. The Program's loans are intended to support businesses that were in good financial health prior to the COVID-19 pandemic to maintain payroll and retain employees during the loan term. Additional eligibility criteria will also apply.

The Program will operate through three separate facilities – the Main Street New Loan Facility (the "New Facility"), the Main Street Priority Loan Facility (the "Priority Facility"), and the Main Street Expanded Loan Facility (the "Expanded Facility"). Loans under the New Facility and the Priority Facility will represent new loans while the Expanded Facility will enable borrowers to upsize preexisting loans. Standard terms of the three facilities include:

  • All loans will be term loans with a 5-year maturity.
  • Principal payments will be deferred for two years, with 15% of the principal being repayable at the end of the third and fourth years and the remaining 70% repayable on maturity.
  • Interest payments will be deferred for one year.
  • Loans will have an adjustable interest rate equal to either one-month or three-month LIBOR plus 3.0%.

The New and Priority Facilities will have a minimum loan size of $250,000, while the Expanded Facility will have a minimum loan size of $10 million. The maximum loan sizes will be $35 million, $50 million and $300 million under the New Facility, Priority Facility, and Expanded Facility, respectively. However, each borrower will be subject to a cap on the loan size it may borrow equal to an amount that, when added to the borrower's other outstanding debt and undrawn available debt, is equal to four times (under the New Facility) or six times (under the Priority Facility and Expanded Facility) the borrower's 2019 adjusted earnings before interest, taxes, depreciation, and amortization.

In making Program loans, lenders will be expected to utilize their customary underwriting and documentation standards, as updated to take into account Program requirements. For example, while the terms of the Program may not expressly require collateral, personal guarantees, or certain covenants to apply to a given loan, if the lender would require such terms in a loan it was made using its customary underwriting criteria, those terms will also apply to a Program loan originated by that lender.

Borrowers participating in the Program will also be required to comply with the direct loan requirements contained in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which include limits on the compensation of certain highly paid officers and employees as well as limitations on stock repurchases and distributions.

Term sheets for the New Facility, Priority Facility, and Expanded Facility are available here.

In anticipation of the Program becoming operational, businesses interested in participating in the Program should review the Program materials on the Federal Reserve Bank of Boston website. Businesses should also consider contacting their existing lenders to discuss the lender's participation in the Program and to review eligibility criteria in further detail.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.