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federal reserve main street lending program

As the COVID-19 pandemic and accompanying economic crisis continue, people and small businesses are going to be looking for more and more ways to keep themselves afloat during this difficult period. The Federal Reserve has unveiled details about a new program using funds allocated to it by the Coronavirus Aid, Relief and Economic Security (CARES) Act to loan money to small businesses. This program, called the Main Street Lending Program, is designed to provide relief to eligible small and mid-sized businesses. The program will run until Sep. 30, 2020. As of June 15, 2020, lenders can begin registering with the Federal Reserve to be included in the Main Street Lending Program.

To build a financial plan for your small business, work with a financial advisor in your area.

What Is the Main Street Lending Program, and How Does It Work?

The Main Street Lending Program is a new offering created by the Federal Reserve to help businesses during the ongoing COVID-19 crisis and accompanying economic downturn. It is a great alternative to the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan (EIDL) program and the Express Bridge Loan program. Note that companies that have already applied to the PPP are also eligible for loans through the Main Street Lending Program.

Unlike many of the other coronavirus relief efforts for small businesses, these programs are not connected to the Small Business Administration. Rather, they are run by the Federal Reserve, which has a different role than the SBA or other government agencies.

“The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible,” said Fed Chief Jerome Powell.

This program in particular is designed to help banks give money more freely to businesses in need of a loan by purchasing a large portion of the loan from the bank, freeing them of most of the risk.

More specifically, once your company gets its loan, the Federal Reserve will buy up 95% of the loan from the bank, leaving just 5% with the bank that originated the loan. The term of these loans is four years, and amounts generally range between $1 million and $25 million. These loans cannot be used to pay off any other existing debt the borrower has.

The Federal Reserve will be purchasing up to $600 billion in loans. They each come with a repayment term of four years. Below is a breakdown of the three main loan types: new loans, priority loans and expanded loans.

Main Street Lending Program Loan Types
Loan Type New Loans Priority Loans Expanded Loans
Minimum Loan $500,000 $500,000 $10 million
Maximum Loan Lesser of $25 million or an amount that, when added to outstanding and unused available debt, does not exceed 4x adjusted 2019 EBITDA Lesser of $25 million or an amount that, when added to outstanding and unused available debt, does not exceed 6x adjusted 2019 EBITDA Lesser of $200 million, 35% of existing outstanding and unused available debt or an amount that, when added to outstanding and unused available debt, does not exceed 6x adjusted 2019 EBITDA
Rate LIBOR, plus 3% LIBOR, plus 3% LIBOR, plus 3%
Payments – Year 1: automatic deferral
– Years 2-4: 33.33% annually
– Year 1: automatic deferral
– Year 2-3: 15% annually
– Year 4: 70%
– Year 1: automatic deferral
– Year 2-3: 15% annually
– Year 4: 70%

Among the potential applicants for the Main Street Lending Program, there are some who believe that its benefits might be outweighed by some negative factors. In fact, they note that the program may be a little too ambitious in its loan payback timing, along with interest rates being a bit high.

Who’s Eligible for the Main Street Lending Program?

federal reserve main street lending program

The program is available to any businesses with fewer than 15,000 employees or with annual revenues of less than $5 billion. Mary Daly, head of the San Francisco branch of the Federal Reserve, said to Yahoo! Finance that these loans are for companies in the middle, “that don’t access capital markets very easily and don’t qualify for small business lending.”

Once you have a loan, there are several requirements you must meet. First, all efforts must be made to maintain payroll and retain workers through the pandemic and economic crisis. Second, you must meet all compensation, stock repurchase and dividend restrictions that apply to direct loans under the CARES Act.

Another requirement is that, for the duration of the loan plus one year, any non-union employee or officer whose 2019 compensation totaled more than $425,000 cannot have their total compensation for any 12-month period exceed their 2019 compensation. Similarly, for anyone at the company who earned more than $3 million in 2019, the person’s 12-month earnings cannot exceed $3 million plus 50% of the excess he or she earned over $3 million in 2019. For anyone in either of these categories, a severance payment cannot exceed two times their 2019 salary.

How to Apply for a Main Street Lending Program Loan

Like with many other programs designed to help businesses impacted by the COVID-19 crisis, the loans businesses get through the Main Street Lending Program originate at local banks. A business in need of a loan will have to apply for that loan through their local lender. Lenders can also use this program to add on to existing loans for clients.

If you are interested in participating in this program, contact your local lender. Eligible lenders include U.S.-insured depository institutions, U.S. bank holding companies and U.S. savings and loan holding companies.

If you have further questions, the Federal Reserve released an extensive set of frequently asked questions (FAQs), which can be found on the Fed’s website.

Bottom Line

federal reserve main street lending program

There are many programs available to help businesses impacted by the COVID-19 pandemic, and the Main Street Lending Program is designed to help both small businesses and mid-size businesses who may sometimes be left out in the cold. It is operated by the Federal Reserve, who are buying up to $600 million worth of loans from local banks to allow the banks more flexibility on who they offer loans to. You can apply for a loan through one of these local lenders.

Financial Tips for the COVID-19 Pandemic

  • A financial advisor can help you with any questions you have during this crisis and once recovery begins. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in just five minutes. Get started now.
  • There are numerous other programs, including state-level offerings, that are available to help small businesses. Make sure you peruse them and figure out what will be best to help keep your business afloat.

Photo credit: ©iStock.com/pabradyphoto, ©iStock.com/AlenaPaulus, ©iStock.com/panida wijitpanya

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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