What Is The Main Street Lending Program & Is My Small Business Qualified?

As the COVID-19 pandemic continues its societal devastation and an economic crisis thrives in its wake, many businesses throughout the US are hurting financially. In an effort to help alleviate small- and medium-sized businesses, the Federal Reserve is running a program known as the Main Street Lending Program.

This program allocated up to $600 billion in loans for businesses affected by the COVID-19. Its aim is to provide a shot in the arm to the economy. However, not all businesses qualify — many small businesses struggle to meet the program’s stringent requirements.

To help get you and your business up to speed on what this all entails, below is our guide on the Main Street Lending Program, as laid out by the Fed.

What Is The Main Street Lending Program?

The Main Street Lending Program was initially announced by the Federal Reserve in March 2020 as a way to support small-to-medium sized businesses affected by the economic crisis surrounding COVID-19. In early April, guidelines for the program were officially revealed.

“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,” Federal Reserve Chairman Jerome Powell said in a statement at the launch of the program’s guidelines.

The Fed later expanded the definitions of the program towards the end of April to include an additional loan option, lowered minimum loan size, and expanded eligibility requirements for businesses.

While this program is separate from those run by the Small Business Administration — like the Paycheck Protection Program (PPP) or Economic Injury Disaster Loans — it still has some similarities (mainly that the businesses will work with local lenders to originate the loans and not the government). This program also functions as a potential alternative to the above-mentioned programs offered by the SBA.

How The Main Street Lending Program Works

Note: On June 8, the Fed expanded the program for greater accessibility. The tweaks included adjusting the potential size of the loans as well as lengthening term lengths. The numbers below have been updated to reflect the Fed’s recent changes.

2nd Note: On October 30, the Fed expanded the program further. These changes included lowering the minimum loan size and easing debt restrictions for businesses participating in the PPP program. The numbers below have been updated again to reflect the Fed’s recent changes.

Here’s how the Main Street Lending Program operates in a nutshell: A business applies through a bank for a loan. Once the loan is approved by the bank, the Fed purchases 95% of the loan through a special purpose vehicle (SPV) set up by the Federal Reserve Bank of Boston.

These loans don’t suit every business — they range in size between $100,000 and $300 million. These loans must also have a term of five years. Additionally — unlike loans given out under the PPP — Main Street loans aren’t forgivable. Instead, businesses that take out a loan under this program will be required to pay it back in full.

The program itself consists of three different types of loans, referred to as “facilities”:

• The Main Street New Loan Facility: Allows eligible lenders to extend unsecured or secured term loans to businesses on or after April 24, 2020. The size of the loan can’t exceed $35 million or 4x the business’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). Minimum loan size is $100,000.
• The Main Street Priority Loan Facility: Allows eligible lenders to extend unsecured or secured term loans to businesses on or after April 24, 2020. The size of the loan can’t exceed $50 million or 6x the business’s adjusted 2019 EBITDA. Minimum loan size is $100,000.
• The Main Street Expanded Loan Facility: Allows lenders to increase existing term loans or lines of credit made to businesses before April 24, 2020. The size of the loan can’t exceed $300 million, 35% of outstanding and available debt, 6x the business’s adjusted 2019 EBITDA when added to outstanding and available debt. Minimum loan size is $10 million.

The Fed set the total combined size of all three loan options at $600 billion initially. Through funding from the CARES Act, the Department of the Treasury provided $75 billion in equity to the Main Street Lending Program.

Main Street Lending Program Eligibility Requirements

The Main Street Lending Program is geared towards small- and medium-sized businesses. Per the Fed’s FAQs sheet, an eligible business must:

• Have been established earlier than March 13, 2020
• Not be an ineligible business, based on SBA regulations
• Have 15,000 or fewer employees or annual revenues of $5 billion or less in 2019
• Have been created or organized in the US
• Only participate in one of the Main Street facilities and also not participate in the Primary Market Corporate Credit Facility
• Not have received specific support pursuant to the CARES Act (specifically Subtitle A of Title IV for air carriers, air cargo, and businesses critical to national security)
• Be able to meet every certification and covenant required by the Main Street Lending program

It is worth noting that should a business have taken advantage of the PPP, they are still eligible to apply for a Main Street loan, according to a press release published by the Fed on April 9. PPP loans totaling less than $2 million may be excluded from the Fed’s “existing outstanding and undrawn available debt” calculation. For more on that check out the Fed’s FAQs sheet.

On top of the above requirements, the Fed further stated in the linked press release that those applying for Main Street loans “must commit to make reasonable efforts to maintain payroll and retain workers.” Additionally, compensation, stock repurchase, and divided restrictions for direct loan programs outlined by the CARES Act must be followed by Main Street loan borrowers.

Where You Can Get A Main Street Loan

Similar to the PPP, loans with the Main Street Lending Program originate at local banks. This means that if you need a loan under this program, you’ll need to apply through your local lender.

Specifically, the Fed has designated “eligible lenders” as US insured depository institutions, US bank holding companies, US savings and loan holding companies, and US intermediate holding companies of foreign banking organizations. There isn’t an exhaustive list of approved lenders currently, so if you are interested in this program, we recommend contacting your local lender to see if they hand out Main Street loans.

Other Resources If The Main Street Lending Program Isn’t The Right Fit

Because the Main Street Lending Program targets businesses that need loans of at least $100,000, many small businesses may be left hung out to dry with this program. There are a number of other loan resources available to small businesses affected by the COVID-19. You may additionally find relief through small business grants for coronavirus relief.

For more general aid, you can check out our coronavirus hub for other resources to help your business get through this current crisis.