The Federal Reserve announced a new Main Street Lending Program to facilitate $600 billion in loans to businesses and nonprofit organizations.
The Federal Reserve Board’s Main Street Lending Program is designed to support businesses that were in good financial standing before the crisis. It offers 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion, and defers principal and interest payments for one year. In a letter to the Administration and Congress on March 16, the US Chamber recommended they create a bridge loan for medium and large businesses as it became clear economic disruption was imminent. The Main Street Lending Program is the result.
The Main Street Program consists of two facilities: the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF), which have term sheets setting forth basic terms of the loans available. The MSNLF is for new loans originated on or after April 8, while the MSELF applies to loans existing before April 8 that will be “upsized” through the program.
Businesses that have applied under the Paycheck Protection Program (PPP) may also take out a loan under the Main Street Program. Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses. Banks will retain a 5 percent share, selling the remaining 95 percent to the Main Street facility, which will purchase up to $600 billion of loans. Organizations seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers.
Unlike loans under the PPP, Main Street Program loans are not forgivable and borrowers will be responsible for up to two percent in origination and facility fees. Borrowers may not use proceeds under the Main Street loan programs to repay or refinance preexisting loans, but must strive to maintain payroll and retain employees during the term of the loan.
Although no details regarding applications or procedures have been issued, we expect guidance on loan application procedures and other details shortly after the end of the comment period, which expires April 16. Private lenders could start processing applications as soon as the week of April 20. The term sheets are available at: Main Street New Loan Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF).