Federal Reserve Expands Scope of Main Street Lending Program
On October 30, 2020, the Federal Reserve announced amendments to the Main Street Lending Program to offer more targeted support to smaller businesses that continue to be adversely impacted by the COVID-19 pandemic. The Federal Reserve also released revised Frequently Asked Questions relating to the Main Street facilities for for-profit and nonprofit borrowers (available here and here) and revised form documentation (available here).
Under the Main Street Lending Program, which was established under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of Boston will lend money on a recourse basis to a special purpose vehicle (the “SPV”). This SPV has committed to purchasing up to $600 billion in loans from five facilities: the Main Street New Loan Facility (the “MSNLF”), the Main Street Priority Loan Facility (the “MSPLF”), the Main Street Expanded Loan Facility (the “MSELF”), the Nonprofit Organization New Loan Facility (the “NONLF”) and the Nonprofit Organization Expanded Loan Facility (the “NOELF”). The Treasury Department has committed to investing $75 billion in the SPV from funds appropriated under Title IV of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
Under the MSNLF and the MSPLF, eligible lenders may originate new term loans to eligible for-profit borrowers, while eligible lenders may upsize term loans or revolving credit facilities entered into on or before April 24, 2020 under the MSELF. Under the NONLF, eligible lenders may originate new term loans to eligible nonprofit borrowers, while eligible lenders may upsize term loans or revolving credit facilities entered into on or before June 15, 2020 under the NOELF. More information on these facilities is available here.
On October 30, the Federal Reserve decreased the minimum loan size under the MSNLF, the MSPLF and the NONLF from $250,000 to $100,000, as well as adjusted the fee structure for these facilitates to encourage smaller loans. This revised fee structure is as follows:
|Initial Principal Amount of Loan||Transaction Fee||Origination Fee||Servicing Fee|
|Less than $250,000||None||Borrower must pay origination fee of up to 200 basis points||SPV will pay lender 50 basis points of its participation per annum for loan servicing|
|$250,000 or more||Lender must pay transaction fee of 100 basis points, and may require borrower to pay this fee||Borrower must pay origination fee of up to 100 basis points
|SPV will pay lender 25 basis points of its participation per annum for loan servicing|
In order to facilitate access to Main Street loans for smaller businesses, the Federal Reserve also clarified that certain indebtedness under the Paycheck Protection Program (“PPP”) may be excluded when calculating an eligible borrower’s “existing outstanding and undrawn available debt” for purposes of determining (x) the maximum allowable loan amount under the for-profit Main Street facilities and (y) the requirement that nonprofit organizations have, at the time of origination or upsizing, a ratio of (i) unrestricted cash and investments to (ii) existing outstanding and undrawn available debt, plus the amount of any loan under the Main Street facility, plus the amount of any CMS Accelerated and Advance Payments, that is greater than 55%. More specifically:
- Any PPP loan that the Small Business Administration (“SBA”) has determined is eligible for forgiveness may be excluded from an eligible borrower’s outstanding debt. Conversely, if the PPP lender or SBA determines, prior to submission of a Main Street loan, that some or all of an eligible borrower’s PPP loan is not forgivable, the amount of this unforgivable PPP debt must be included.
- If an eligible borrower, together with its affiliates (as defined for purposes of the PPP), received PPP loans with an aggregate principal amount of less than $2 million, and has applied for PPP loan forgiveness, then the “Forgiveness Amount” reported on the applicable SBA form may be excluded, except to the extent the PPP lender or SBA has determined such amount is not eligible for forgiveness. If such eligible borrower has not yet applied for PPP loan forgiveness, then the amount of such PPP loan that the borrower’s principal executive officer has a reasonable, good-faith basis to believe will be forgiven in accordance with applicable PPP requirements may be excluded.
- If an eligible borrower, together with its affiliates (as defined for purposes of the PPP), has received PPP loans with an aggregate principal amount of $2 million or more, such borrower may exclude from an eligible borrower’s outstanding debt any portion of such loans that the SBA has determined is eligible for forgiveness.
Each eligible borrower that is seeking to exclude PPP debt from its “existing outstanding and undrawn available debt” must provide the eligible lender, during the underwriting process, with a copy of its submitted PPP loan forgiveness application or, if not yet available, an executed copy of the Exclusion of PPP Loan from Main Street “Outstanding Debt” form (available here).
Additionally, the Federal Reserve clarified in the recently released Frequently Asked Questions that, although borrowers may be eligible to receive more than one loan under a single Main Street facility, the SPV will only accept one loan with an initial principal amount of less than $250,000 made by the same Main Street lender to the same borrower within 60 days. This limitation is designed to prevent lenders from originating multiple loans to the same borrower in amounts under $250,000 in order to benefit from the revised fee structure set forth above.
We are here to help answer specific questions and offer advice on your options. Please contact any member of our Corporate & Business Group to discuss.