Fed Expands Eligibility, Scope for New COVID-19 Lending Program
The Federal Reserve this week expanded the scope and eligibility requirements for its Main Street Lending Program.
The program will now include a third loan option, with increased risk sharing by lenders for borrowers with greater leverage.
The minimum loan size for certain loans was lowered to $500,000 and the Fed is expanding the pool of eligible businesses.
Companies with up to 15,000 employees or up to $5 billion in annual revenue are now eligible—up from 10,000 and $2.5 billion respectively.
The program was designed to help credit flow to small and medium-sized businesses that were in sound financial condition before the coronavirus pandemic.
Main Street Lending Program Options
| Loan Options | New Loans | Priority Loans | Expanded Loans |
|---|---|---|---|
| Term | 4 years | 4 years | 4 years |
| Minimum loan size | $500,000 | $500,000 | $10 million |
| Maximum loan size | Lesser of $25 million or 4x 2019 adjusted EBITDA | Lesser of $25 million or 6x 2019 adjusted EBITDA | Lesser of $200 million, 35% of outstanding and undrawn available debt, or 6x 2019 adjusted EBITDA |
| Risk retention | 5% | 15% | 5% |
| Payment (year one deferred for all) | Years 2-4: 33.33% each year | Years 2-4: 15%, 15%, 70% | Years 2-4: 15%, 15%, 70% |
| Rate | LIBOR +3% | LIBOR +3% | LIBOR +3% |
Eligible borrowers must submit an application through an approved lender to obtain a loan under the Main Street Program.
Unlike other loan programs authorized by the Coronavirus Aid, Relief, and Economic Security Act, there are fees associated with Main Street loans, which are also full recourse loans and not forgivable or convertible to grants.
Companies are eligible to get a Main Street loan even if they received a Paycheck Protection Program or other CARES Act relief.
The Fed expects to announce a start date for the $600 billion lending program soon.
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