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On April 9, 2020, the Federal Reserve announced it is taking additional actions to provide for the purchase of up to $600 billion in loans through its new Main Street Lending Program. The program was designed to deploy loans to small and mid-sized businesses affected by the COVID-19 pandemic, especially those businesses not eligible for the Small Business Administration’s Paycheck Protection Program (PPP). Although, businesses that have taken advantage of the SBA PPP may also apply for Main Street Lending Program if they are eligible.
The Federal Reserve is seeking comments on this program through April 16, 2020, and consequently, the terms are subject to change. Specific timing information and other details about the application processes have not yet been released.
Businesses approved for these loans will benefit from a low interest rate (secured overnight funding rate) plus 250-400 basis points and a four-year maturity. Amortization of principal and interest payments will also be deferred for one year. All loans are available with no prepayment fee or penalty. However, unlike the SBA’s PPP, loans provided under this program are not eligible for any forgiveness.
New loans originated on or after April 8, 2020, are eligible for the program and is available for a minimum loan amount of $1 million up to $25 million. The maximum available loan amount will depend on the lesser of either $25 million or an amount that does not exceed the business’s 2019 earnings before interest, tax, depreciation and amortization (EBIDTA) by four times.
For upsizing existing loans that originated before April 8, 2020, the maximum amount is equal to the lesser of the following:
Leverage conditions could prevent highly leveraged businesses from participating. No guidance has been provided as to how EBITDA should be calculated, including whether any non-GAAP add-backs to EBITDA will be allowed for purposes of determining loan amounts under this program.
A business must meet the following requirements to qualify for a loan under the program:
No guidance was provided as to whether affiliation rules may apply to these eligibility thresholds or how applicants must count their employees (e.g., full-time equivalents or full-time, part-time and other-basis employees like the SBA’s PPP requires).
Details to submit applications for loans under the Main Street Lending Program have not been released, but are expected to be soon with the comment period ending on April 16, 2020.
Doeren Mayhew will keep you updated as specifics regarding the program are clarified. You can also leverage summaries of the New Loan Facility and Expanded Loan Facility provided by the Federal Reserve to gain a better understanding of how the current program and lender guarantees work.
We recommend businesses contact their existing lenders to discuss their options. Should you need assistance in gathering financial information for the application process, our business advisors are here to help. Contact us today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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