Main Street Lending Program: An Unprecedented Move

 
The Coronavirus pandemic has forced some of the most unprecedented government actions that we’ve seen in decades. One of them being the Main Street Lending Program. Why so unique? Because this is the first time since the Great Depression that the Federal Reserve is lending to organizations outside of the banking industry. And it’s big news.
 
Of course, this type of news produces various conflicting opinions and interpretations of the program. Here we’ve attempted to simplify the information and provide answers to many of the questions we are receiving.
 

What is the Main Street Lending Program?

 
Bottom line, the Main Street Lending Program is a vehicle through which the Federal Reserve Bank of the United States will purchase a percentage of eligible loans that are given to small or medium businesses that have been negatively impacted financially by the coronavirus pandemic.
 
The Federal Reserve has allocated $600 Billion Dollars towards this initiative, and the U.S. Treasury has set aside $75 billion to offset potential losses due to the high-risk nature of this lending program.
 
Banks will be the actual lenders to the borrowing businesses, but the Federal Reserves will buy up to 95% of the cost of the loan to minimize risk to the banks themselves.
The loans terms will be for up to four years, below market rates, and payments can be deferrable for up to one year. The current minimum loan size is $500,000 and the current maximum loan size is $200 million.
 
In some cases, borrowers will be able to use the loan to refinance existing debt.
However, Main Street loans are not forgivable. Under section 4003(d)(3) of the CARES Act, the amount of a Main Street loan cannot be reduced through loan forgiveness.
The Federal Reserve will stop purchasing loan participations on September 30, 2020 unless it is decided that the program will be extended.
 

Who can Apply for a Loan through the Main Street Lending Program?

 
Eligible businesses must have either 15,000 employees or less or have had 2019 revenues of $5 billion or less. They also must have been established prior to March 13th, 2020.
 
Eligible businesses must be U.S. businesses created or organized in the United States (or under the law of the United States) with the majority of all operations and employees located within the U.S.
 
Borrowers must not have participated in the Primary Market Corporate Credit Facility (PMCCF), and they must not have received any prior support under section 4003(b)(1)-(3) of the CARES Act.
 
Non-profit organizations are not currently eligible at this time.
 
The goal of this program was to extend relief to medium-sized businesses who were in good financial standing before the COVID-19 pandemic, and have suffered due to local government stay-at-home and closure orders. More specifically, the targeted businesses seem to be those that fell between the PPP loans for small businesses and the large businesses that are able to sell bonds to the Federal Reserve corporate lending facilities.
 
To minimize risk and to increase effectiveness of the loan, the Federal Reserve wants to avoid lending to businesses that were in poor standing and at severe financial risk before the pandemic, and they also want to avoid lending to businesses that have maintained good financial standing despite the pandemic.
 

What are the Three Different Types of Loans through the Main Street Lending Program?

 
There are currently three different loan options under the Federal Reserve Main Street Program. Each of the three options adhere to the same exact eligibility rules and terms stated above. Other features, such as how the loan deals with the borrower’s already outstanding debt, differ between options.
 

Type 1: the MSNLF (Main Street New Loan Facility)

 
In this option, eligible lenders extend new loans to eligible borrowers ranging in size from $500,000 to $25 million. The maximum size of this loan cannot exceed four times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization when added to the borrower’s pre-crisis outstanding and undrawn available debt.
 

Type 2: the MSPLF (Main Street Priority Loan Facility)

 
In this option, eligible lenders extend new loans to eligible borrowers ranging in size from $500,000 to $25 million. The maximum size of this loan cannot exceed six times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization when added to the borrower’s pre-crisis outstanding and undrawn available debt.
 
At the time of origination and at all times thereafter, the loan must take priority above all other loans or debt instruments that the borrower has, other than mortgage debt. Eligible borrowers may, at the time of origination of the loan, refinance existing debt owed to a lender that is not the lender for the Main Street Loan.
 

Type 3: the MSELF (Main Street Expanded Loan Facility)

 
With this option, lenders can increase an eligible borrower’s existing term loan. It is still a four-year term loan, but can range in size from $10 million to $200 million. The maximum size of the loan cannot exceed 35% of the borrowers existing outstanding and undrawn available debt, secured or unsecured. Conversely, when the loan size is added to the borrower’s existing outstanding and undrawn available debt, it must be less than six times the Eligible Borrower’s adjusted 2019 EBITDA. At the time of upsizing and at all times thereafter, the upsized tranche must take priority above all the borrower’s other loans or debt other than mortgage debt.
 
Still have questions? We highly encourage you to seek clarification through the Federal Reserve’s FAQ page on the monetary policy of the Main Street Program.
 

Need Help with Determining the Next Steps Financially for your Business?

 
Perry & Associates CPAs has multiple offices throughout the Mid-Ohio and Ohio Valleys and we are ready to help you navigate this complex lending program.
 
Contact us for service you can trust!
 
Marietta, OH
(740) 373-0056
 
Cambridge, OH
(740) 435-3417
 
St. Clairsville, OH
(740) 695-1569
 
Vienna, WV
(304) 422-2203
 
Wheeling, WV
(304) 232-1358
 

What You Need to Know about Disaster Relief for Covid-19

 
On April 1, Perry & Associates reported that the president officially signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. We responded quickly and created a special COVID response group. Our expert accountants are ready to answer your accounting questions regarding the financial relief package.
 
Since creating the COVID response group, we have received hundreds of questions about the CARES Act. We are working around the clock to provide accurate and thorough answers.
However, we understand many of you need to access funds quickly. That’s why we’ve curated six, frequently asked SBA Disaster Loan questions so that you can make the right choices for your business as soon as possible.
 

SBA Disaster Loans – FAQs

 

Am I eligible for a coronavirus SBA disaster loan?

You may apply for CARES Act funds if your business has fewer than 500 workers. This includes corporations, non-profits, sole proprietorships, contractors, and freelancers. There is assistance for larger businesses, but those programs fall outside the scope of this article.
 

Are all SBA disaster loans the same?

No. There are a few distinct programs to the CARES Act. The two most popular programs are the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL).
 

• The EIDL. These loans are made directly through the SBA, not local banks. After applying online, you may receive up to a $10,000 advance that will not have to be repaid whether or not you qualify for an additional loan. Additional loans can be maxed at $2 million and loans up to $200,000 don’t require personal collateral. Finally, an EIDL loan can’t go toward other loans or debt obligations. Apply here.

 

• The PPP. These are 100% federally backed loans used to cover payroll-related expenses through June 30th. These loans will be forgiven if businesses retain employees at compensation levels similar to pre-crisis levels. Loans are made through banks and third-party lenders. For more information, see our PPP section below.

 

When will I receive my relief funds?

For EIDL advances up to $10,000, you could see that deposit within three days of your application. For loans beyond the initial $10,000, most sites claim turnaround time is 2-3 weeks. However, many businesses have seen delays longer than that. Expect to wait a week or two longer than promised before funds are approved and delivered. This applies to PPP loans, too. This situation is ongoing and may resolve at any time.
 

Paycheck Protection Program Questions

 

What information do I need to apply for a PPP loan?

These SBA disaster loans are provided through local lenders and backed by the federal government. Contact your bank or SBA representative to submit an application. You will need to include documentation stating the total number of employees on payroll along with their 2019 salaries and compensation levels. Also, submit verification for mortgages and utility payments.
 

Once I receive my PPP SBA disaster loan, are there restrictions on how I use it?

Yes. As you might expect, the PPP requires borrowers to use funds toward payroll-related costs. Eligible costs include: 

• Payroll administrative fees 
• Health-care benefits
• Employee salaries, commissions, or similar compensation
• Rent and/or mortgage payments
• Utilities
• Interest on debts taken on before the crisis

There are also salary eligibility restrictions. For example, loans will not be forgiven if they go toward any compensation over $100,000 per employee or compensated employees live outside the USA.
 

What happens if my loans aren’t forgiven?

If PPP funds don’t meet eligibility requirements, they might not be forgiven. Loans can only be forgiven if they are used to cover payroll expenses within the eight-week disaster window following the start of the loan. Businesses must also retain employees at salary levels comparable to compensation before the crisis.
If your business does not meet forgiveness criteria, then the funds will remain a traditional loan with a maximum interest rate of 4% and a 10-year repayment window. Loan fees or prepayment penalties will not be applied.
Thank you for reading through our SBA disaster loan FAQ. We hope you’re able to access the funds your business needs.
However, being approved for an SBA disaster loan is just the first step. You will need to track your expenses so that you can prove loan forgiveness eligibility. Together, we will make it through this unprecedented crisis.
 

Talk to one of our accounting experts, and let us set you up for success.

Call us at (740) 373-0056 or contact us online.