The Main Street Lending Program recently changed its loan requirements to include a lowered minimum loan amount, a raised maximum loan limit, an adjusted principal repayment schedule beginning after two years, and an extension of the term to five years. These changes from the Federal Reserve (Fed) last week further the program’s intention – to support small and medium-sized businesses affected by COVID-19 – to become even more inclusive through its three different loans. In addition to these changes, this week, the Fed opens the program for lender registration and asked lenders to start making program loans immediately.
“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Federal Reserve Chair Jerome Powell said. “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.”
After taking three months from design, build and launch by the Fed, at a time when unemployment reaches vast heights, the program is welcomed. The Main Street Lending Program is a departure from the Fed’s role, a lender to the banking sector, to support the economy.
The program’s updates include:
- Lowering the minimum loan size for certain loans to $250,000 from $500,000;
- Increasing the maximum loan size for all loans;
- Increasing the term of each loan option to five years, from four years;
- Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
- Raising the Reserve Bank’s participation to 95% for all loans.
The chart explains the three loans and their changes.
| Main Street Lending Program Loan Options | New Loans | Priority Loans | Expanded Loans |
|---|---|---|---|
| Term | 5 years (previously 4 years) | 5 years (previously 4 years) | 5 years (previously 4 years) |
| Minimum Loan Size | $250,000 (previously $500,000) | $250,000 (previously $500,000) | $10M |
| Maximum Loan Size | The lesser of $35M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA (previously $25M) | The lesser of $50M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA (previously $25M) | The lesser of $300M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA (previously $200M) |
| Risk Rentention | 5% | 5% (previously 15%) | 5% |
| Principal Repayment | Principal deferred for two years, years 3-5: 15%, 15%, 70% (previously principal deferred for one year and 33.33% repayment due in years 2-4) | Principal deferred for two years, years 3-5: 15%, 15%, 70% (previously principal deferred for one year and 15%, 15%, 70% repayment due in years 2, 3, and 4, respectively) | Principal deferred for two years, years 3-5: 15%, 15%, 70% (previously principal deferred for one year and 15%, 15%, 70% repayment due in years 2, 3, and 4, respectively) |
| Interest Repayments | Deferred for one year | Deferred for one year | Deferred for one year |
| Rates | LIBOR + 3% | LIBOR + 3% | LIBOR + 3% |
The Fed has committed to remaining transparent about its program to the public. Interested borrowers can search for lenders through the Fed’s website and resources.
