For some reason, this new loan program for businesses has not received much attention. But $600 billion has been allocated for the project, so if you’ve been hit hard by the pandemic, it might be a lifesaver.
The name of this new program, The Main Street New Loan Facility, is somewhat of a misnomer. The maximum allowed annual revenue that business can have and still qualify for a loan is $5 billion. I’m not aware of any “Main Street” business that has that kind of revenue!
But regardless, it’s a new program by the Federal Reserve to assist businesses that are trying to recover from the Coronavirus pandemic.
As the Fed explains it, the Main Street New Loan Facility (“Facility”) is intended to facilitate lending to small and medium-sized Businesses by lenders. An eligible lender is a U.S. federally insured depository institution (ie: banks, savings associations and credit unions). The Fed will buy 95 percent of the loan from the lending institution.
An eligible borrower is a business that
- was established prior to March 13, 2020,
- is not an ineligible business (ie: banks; life insurance companies but not independent agents, finance companies; factoring companies; investment companies, bail bond companies; and any other businesses whose stock in trade is money),
- meets at least one of the following two conditions: (1) has 15,000 employees or fewer, or (2) had 2019 annual revenues of $5 billion or less,
- is created or organized in the United States with significant operations in and a majority of its employees based in the United States, and
- does not also participate in the MSPLF, the MSELF, or the Primary Market Corporate Credit Facility; and has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020. (PPP loans are OK.).
- 5 year maturity
- principal payments deferred for two years and interest payments deferred for one year (unpaid interest will be capitalized)
- adjustable rate of LIBOR (1 or 3 month) + 300 basis points
- principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at maturity at the end of the fifth year;
- loan size can be from $250,000 to $35 million
- is not, at the time of origination or at any time during the term of the loan, contractually subordinated in terms of priority to any of the borrower’s other loans
- prepayment permitted without penalty.
Other requirements and conditions:
- Borrower must commit to not repaying principal or interest on other loans until the Facility loan is paid in full unless the debt or interest payment is mandatory and due.
- Borrower must commit that it will restrict compensation, capital distributions to owners per the issued guidelines.
- Each borrower that participates in the Facility should make commercially reasonable efforts to maintain its payroll and retain its employees during the loan term.
- A lender will pay the Fed a transaction fee of 100 basis points of the loan amount at the time of origination. The lender may require the borrower to pay this fee.
- A borrower will pay a lender an origination fee of up to 100 basis points of the amount of the loan at the time of origination. The Fed will pay a lender 25 basis points of the principal amount of its participation in the loan per annum for loan servicing.
There are many other details. Speak to your banker to see if you qualify. You’ll be dealing with the government so a word of warning: expect some confusion and delay.
Please don’t hesitate to call or email if my office can be of assistance.
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William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership. He currently serves as president of the American Business Brokers Association. His practice includes consulting services nationally on issues of business valuation and transfer. He may be reached at (251) 990-5934 or by email at Will@WilliamBruce.org.