The COVID-19 pandemic has decimated many industries across the United States. The federal government has tried to alleviate such economic distress by offering various loan programs.
Authorized under the CARES Act, the Main Street Lending Program (“Main Street”) intends to assist financially sound companies that have struggled due to the pandemic. Compared to the other loan programs, Main Street has had a sluggish start. In the wake of harsh criticism from lawmakers, the Federal Reserve has changed the terms of the program to allow for greater participation. Importantly, on July 17th, the Federal Reserve announced the terms of an expansion of Main Street to include loan facilities that would allow for non-profit borrowers.
Types of Loans
Generally, businesses are eligible for a Main Street loan if they have fewer than 15,000 employees or had less than $5 billion in revenue in 2019 and do not fall under one of the other listed exclusions. Five loans are currently offered under Main Street:
- Main Street New Loan Facility
- Main Street Priority Loan Facility
- Main Street Expanded Loan Facility
- Nonprofit Organization New Loan Facility
- Nonprofit Organization Expanded Loan Facility
Given that there are several types of loans, and terms are constantly changing, we can only discuss the logistics of Main Street in broad strokes. The Federal Reserve designed Main Street to support small and medium-sized businesses that were unable to access PPP loans or that require additional financial support after receiving a PPP loan. Under Main Street, commercial banks lend to companies, and then the majority of each loan is purchased by the Federal Reserve.
Unlike PPP loans and EIDL loans, Main Street does not provide for any loan forgiveness or grants. The Federal Reserve just lowered the minimum loan amount to $250,000 and raised the maximum loan amount to $3,000,000. All of the loans issued under this program have a five-year maturity with an adjustable rate with a deferral of principal for two years and deferral of interest for one year. Businesses interested in the Main Street Lending Program should meet with eligible lenders to determine which loan best suits the needs of their company. More information and frequently asked questions can be found here.
The addition of two new credit facilities to Main Street will facilitate loans to non-profit borrowers like educational institutions, hospitals, and social service groups with at least 10 employees. The main difference between the two new loan facilities is the minimum and maximum amounts of the loan and the fees associated with each loan. To qualify for a loan through Main Street, non-profit borrowers must have been in operation at least five years and have less than $3 billion in endowment. The Federal Reserve also relaxed some of the original eligibility criteria it had proposed for non-profits, lowering the total amount of non-donation revenue a borrower had to have from 2017 to 2019 from 70% to 60% and cutting the required 2019 operating margin from 5% to 2%. The other loan terms for non-profit borrowers are the same as for the borrowers in Main Street’s other facilities.