The Main Street Lending Program: What Your Business Needs to Know
By Justin Biel, trends editor at Grow Wire
The Federal Reserve Board on April 9 released new details of the Main Street Lending Program, designed to deploy loans to “small and mid-sized businesses” — firms with up to 10,000 employees and less than $2.5 billion in annual revenue — affected by COVID-19.
Unlike the Small Business Administration’s Economic Injury Disaster Loan and the Paycheck Protection Program, both of which are currently open for application and aimed at smaller businesses, the Main Street program will be the first federal relief program also aimed at larger companies. (Note: If you already applied for a loan with the Paycheck Protection Program, you can also apply for a Main Street loan.)
The Federal Reserve Board first announced the program in a March 23 press release. However, unlike the relief programs aimed at smaller businesses, the program has yet to accept loan applications.
This article covers what we know so far. We’ll update it with new developments as they arise.
What is the Main Street Lending Program?
After Congress allotted $454 billion to the Department of the Treasury to support the Fed’s programs in the wake of COVID-19, a number of lending programs developed to support businesses across the U.S. and stabilize the economy.
The Fed developed one such program, the Main Street lending program, to provide relief for both small and middle-market companies.
Mary Daly, president of the Federal Reserve bank of San Francisco, explained the rationale behind the program in an interview with Yahoo Finance.
“There is this whole swath of institutions that don’t access capital markets very easily and don’t qualify for small business lending,” she said. “So if you think about it, that’s a part of Main Street that still needs to be treated and directly employs millions of workers in the United States.”
Who is eligible for the Main Street Lending Program?
Per the Fed’s latest guidelines announced on Thursday, a business must meet the following requirements to qualify for a Main Street loan:
- Have up to 10,000 employees or revenues of less than $2.5 billion. (Previous reports said businesses would need to have a minimum of 500 employees in order to apply, yet the Fed’s new guidelines don’t mention that.)
- “Commit to make reasonable efforts to maintain payroll and retain workers.” (Again, previous reports provided more detail, saying that businesses who get loans would need to retain at least 90% of their workforces, at full compensation and benefits, until Sept. 30, 2020.)
- “Follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under The CARES Act,” the federal stimulus package that sparked the Main Street Lending Program. (Law firms have more information on those restrictions.)
Neither the Fed nor banks have yet to issue exact details regarding applicants and how to apply. Earlier reports based on analysis of The CARES Act stated that businesses who get Main Street loans will likely be required, at least on good faith, to rehire at least 90% of any employees laid off since January 2020.
Also, according to the Act, those that get loans will “make a good faith certification” including to-dos like not outsourcing jobs while repaying the loan and for two years afterward.
How much money can I get from the Main Street lending program?
CNBC reports that loans would have a minimum of $1 million and a maximum of either $25 million or an amount that “when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization,” whatever is less.
What are the terms of these loans?
Who serves as lenders for the Main Street lending program?
Lenders for the Main Street program will be financial institutions, such as large banks. The government will purchase 95% of the loan while the financing institution will hold the other 5%.
How will I apply for a loan?
Businesses will apply directly with the lender, though neither the Fed nor banks have released details about the process. It’s usually recommended to apply for a loan at the bank you currently work with.
“The application process will certainly vary by bank – larger banks may leverage a portal to take in applications, while smaller banks may require an application and supporting documentation to be submitted to a specific branch or through email,” said Brandon Koeser, senior manager and financial services senior analyst with RSM US LLP, a middle-market consulting firm.
If your bank is using a portal to collect applications for the Paycheck Protection Program, it’s “more likely they’ll use a portal” for Main Street loan applications, he added.
When will I be able to apply?
The Fed’s much-anticipated Thursday announcement provided new details about the Main Street Lending Program, but it didn’t outline an application process.
Koeser acknowledged that “we are still in wait-and-see mode” with regard to a program launch date. It could be later rather than sooner, he added, referencing the fact that many banks weren’t ready to accept loan applications when the Paycheck Protection Program launched last week.
“In light of how the rollout of the Paycheck Protection Program has gone with the SBA and participating lenders, it is possible that the Fed will take all of those weeks to craft the necessary rules and lay out the application and funding process,” he said.
Is there anything I can do now to prepare?
Koeser expects the Main Street loan application to require similar documents to the Paycheck Protection Program.
To get prepared now, he recommends gathering:
- Payroll filings reported to the IRS for 2019
- Payroll records supporting your compensation expenses and total workforce numbers.
“The important thing to remember is that this stimulus is designed to get into the hands of those who need it,” Koeser added.
So, while explicit details of the paperwork required aren’t released yet, he recommends preparing any and all information related to payroll that supports your business’s need for a loan.
“The more detail you can pull together on your payroll costs, including IRS filings and payroll reports, the better it will be when it comes time to complete the application,” he added. “Information-gathering could prove to be the most time-consuming part of the application process, so gathering what information you have could save time when it really counts.”