On Thursday, April 9, the Treasury and Federal Reserve announced that they are taking additional steps as part of the CARES Act to provide up to $2.3 trillion in financial support for businesses and state and local governments affected by the COVID-19 pandemic. According to Chairman Jerome Powell, the Fed is running nine different lending facilities in priority areas where help is needed.
One of these measures is the activation of the Main Street Lending Program. The program will provide up to $500 billion in lending to companies with fewer than 10,000 employees or less than $2.5 billion in 2019 revenues. Companies will be able to apply for these loans in conjunction with Paycheck Protection Program (PPP) loans. Lenders for the program will be financial institutions, as with the PPP.
Key terms of Main Street Lending Program loans include:
- Minimum loan amount of $1 million and a maximum of either $25 million or an amount that “when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the eligible borrower’s 2019 EBITDA,” whichever is less, according to the Fed.
- Four year term.
- Principal and interest payments will be deferred for one year.
- An interest rate equal to the Fed’s Secure Overnight Financing Rate (currently 0.01 percent), plus 250-400 basis points.
Companies seeking loans must commit to making reasonable efforts to maintain payroll and retain workers. There are also executive compensation, stock repurchase, and dividend restrictions with which borrowers will be expected to comply.
The Fed and Treasury are still finalizing the details of the program, including a rollout date and application process. However, it is expected that the loan application will require similar documentation as the PPP.
Thursday’s announcement also included an update on the PPP. The Fed will bolster the program by supplying liquidity to participating banks via term financing. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible banks that originate PPP loans, taking the loans as collateral at face value.
As more details of the Main Street Lending Program are made available, we will provide additional updates. We also continue to update our COVID-19 Resource Center, which you can access here. If you have any questions about these or any other matters, please do not hesitate to contact your Kreischer Miller relationship professional or any member of our team
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