Federal Reserve Launches $600 Billion Main St Lending Program
The Federal Reserve this week launched a $600 billion loan program designed to support businesses that did not meet requirements for the Paycheck Protection Program and other relief initiatives.
The Main Street Lending Program offers three different secured or unsecured five-year loan options with adjustable interest rates of LIBOR plus 3%.
Unlike PPP loans, Main Street loans are full-recourse loans and are not forgivable, with all loans made by private financial institutions and backed by the Federal Reserve.
It’s the first time the Fed has loaned money outside the banking industry since the Great Depression.
“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” said Fed chair Jerome Powell.
“I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period.”
Main Street Lending Program Options
| Loan Options | New Loans | Priority Loans | Expanded Loans |
|---|---|---|---|
| Term | 5 years | 5 years | 5 years |
| Minimum loan size | $250,000 | $250,000 | $10 million |
| Maximum loan size | Lesser of $35 million or 4x 2019 adjusted EBITDA | Lesser of $35 million or 6x 2019 adjusted EBITDA | Lesser of $300 million, 35% of outstanding and undrawn available debt, or 6x 2019 adjusted EBITDA |
| Risk retention | 5% | 5% | 5% |
| Payment (year one deferred for all) | Years 3-5: 15%, 15%, 70% | Years 3-5: 15%, 15%, 70% | Years 3-5: 15%, 15%, 70% |
| Rate | LIBOR +3% | LIBOR +3% | LIBOR +3% |
| Lender transaction fee (may be paid by borrower) | 100 basis points of principal loan amount | 100 basis points of principal loan amount | 75 basis points of principal loan amount |
| Borrower origination fee | 100 basis points of principal loan amount | 100 basis points of principal loan amount | 75 basis points of principal loan amount |
U.S. businesses are eligible if they were established before March 13, 2020, and have 15,000 employees or fewer or 2019 revenues of $5 billion or less.
The program has undergone significant revisions since it was first announced, expanding the range of eligible businesses, raising loan amounts, and adding more favorable terms.
For more information, contact CBIA’s Brian Corvo (860.244.1169).
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