The Federal Reserve Board announced Monday revisions to the Main Street Lending Program that will make it possible for more small and midsize businesses to receive financial support once the program opens.
The board made a number of changes to the program, which is designed to provide backing through three lending facilities for new and expanded loans for businesses with 15,000 or fewer employees. The program has been delayed for months as the Fed sought feedback, but is expected to launch this week. Among the changes announced Monday are:
- Lowering the minimum loan size to $250,000 from $500,000.
- Increasing the maximum loan size for all three loan facilities in the program. New loans can now be as much as the lesser of $35 million (up from $25 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed four times adjusted EBITDA. Priority loans can be the lesser of $50 million (up from $25 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed six times adjusted EBITDA. Expanded loans can range from a minimum of $10 million to the lesser of $300 million (up from $200 million) or an amount that, when added to outstanding and undrawn available debt, does not exceed six times adjusted EBITDA.
- 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. Previously, the Reserve Bank purchased 85% of priority loans in the program.
“Supporting small and midsized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Federal Reserve Chair Jerome Powell said in a news release. “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.”
The Main Street program is one of a series of programs the Federal Reserve announced in April to provide up to $2.3 trillion in loans to households, businesses, and state and local governments struggling to deal with the COVID-19 pandemic. Specifically, the Main Street program supports loans to U.S. companies with less than $2.5 billion in 2019 revenue that were in good financial standing before the COVID-19 crisis and subsequent quarantines stalled the American economy.
The Main Street program was designed in part to fill a need for funding for companies too large for the Paycheck Protection Program (PPP), which is run by Treasury and the U.S. Small Business Administration (SBA) and provides forgivable loans to companies that in most cases must have no more than 500 employees.
Bolstered by $75 billion in equity provided by Treasury through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the Main Street program supports lenders that register for the program, by purchasing 95% of each loan that meets eligibility and documentation requirements.
The AICPA’s SBA Paycheck Protection Program Resources for CPAs page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.
For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.
— Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.