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Main Street Lending Program — everything we know so far
Low-interest loans starting at $1 million for small and midsize businesses affected by the COVID-19 pandemic.
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The federal government regularly revises the details of these programs as the coronavirus outbreak affects more businesses. We’ll update this page regularly as new information unfolds.
The Federal Reserve announced plans to launch a new loan program for small and midsize businesses — just as other popular government loan programs have run out. But with higher rates and loan amounts, the Main Street Lending Program might not be right for businesses on the smaller end of the spectrum.Main Street Lending Program at a glance
What is the Main Street Lending Program?
The Main Street Lending Program is a new government loan program from the Federal Reserve for small and midsize businesses struggling during the coronavirus outbreak. Under this program, eligible businesses can apply for a new loan through the Main Street New Loan Facility (MSNLF) or to have more funds added to a current loan through the Main Street Expanded Loan Facility (MSELF).
The Federal Reserve has put aside a total of $600 billion to fund this program. That’s close to twice the amount Congress allocated for the Paycheck Protection Program in the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The Main Street Lending program will be available until September 30, 2020.
How does it work?
The Main Street Lending Program works by following these steps:
- The Federal Reserve creates a special purpose vehicle (SVP). An SVP is a temporary legal entity from the Federal Reserve, which exists solely to buy loans from the banks. The Federal Reserve lends money to the SVP, which controls all of the funding available to the Main Street Lending Program.
- Businesses take out a loan. Lenders provide funding upfront to businesses as either a new loan or additional funds to a current loan, based on rates and terms outlined by the Federal Reserve.
- SVP buys the loan. The SVP buys 95% of the loan from the lender. The lender is still responsible for the other 5% of the loan.
- Businesses repay the loan. The borrower repays the loan to the lender.
Who qualifies?
Businesses must meet the following requirements to qualify for a loan through this program:
- No more than 10,000 employees or $2.5 billion in annual revenue
- Currently in business
- Created and operating in the US
- Majority of employees based in the US
- No loans through the Primary Market Corporate Credit Facility (PMCCF) loan program
- No current MSNLF or MSELF loans
- Not a members of Congress or restricted from borrowing under the CARES Act in Section 4019(b)
Expanded loans must have been originated before April 8, 2020 to qualify for additional funding through MSELF. Lenders might have additional requirements to qualify for a loan through both programs.
Main Street Lending borrower commitments
If you take out a loan through the Main Street Lending Program, your business must commit to refraining from the following until one year after your business pays off the loan:
- Buying equity security from the business or a parent company
- Paying dividends or making other capital distributions
- Paying a higher compensation to an employee or officer who earned an annual compensation of over $425,000 in 2019
- Paying severance equal to more than twice the annual compensation of employees or officers who earned over $425,000 in 2019
- Paying over $3 million to employees and officers who earned that amount in total compensation for 2019
- Paying more than 50% of any compensation over $3 million to employees who earned over $3 million in 2019
How much can I borrow?
Currently, loans start at $1 million. But the maximum amount you can borrow depends on the type of loan you take out.
MSNLF maximum loan amount
The maximum loan amount for the new loan program is no more than four times your 2019 earnings before interest, taxes, depreciation and amortization (EBITDA) when added to your outstanding but undrawn debt.
The absolute maximum you can borrow is $25 million.
Let’s take a look at an example …
Say you had a business that earned $1 million in EBITDA for 2019. Without any loans in the works, the maximum you could borrow is $4 million.
However, say you were approved for a Paycheck Protection Loan of $150,000, but haven’t received the funds yet.
In that case, you’d have to subtract the $150,000 from the $4 million, leaving you with a maximum loan amount of $3.85 million.
MSELF maximum loan amount
If you’re applying to expand a current loan, you can borrow up to the lesser of the following:
- $150 million
- 30% of your outstanding but undrawn bank debt
- Six times your 2019 EBITDA, when added to your outstanding but undrawn debt
Keep in mind that the rates and terms of MSELF loans only apply to the new portion that you add to a current loan. It doesn’t change the rates and terms that you originally signed up for on your outstanding balance.
If you already pledged collateral on your loan, it’ll apply to the new loan on a proportional basis. So for example, if the expanded part of the loan is the same size as your old loan, your collateral would back the new and old portion of the loan equally.
How much does it cost?
Three main factors affect how much this loan program costs — the interest rate, fees and loan term.
Interest rates
Main Street Lending Program loans come with a variable interest rate of the secured overnight financing rate plus 2.5% to 4%. While the SOFR has stayed below 0.5% since mid-March, the fact that it changes on a daily basis makes it difficult to predict how much your loan will cost each month and in total.
Fees
Both loan programs come with a 1% origination fee of the new loan amount — called an upsizing fee through the MSELF program.
You might also have to pay a 1% facility fee on loans through the MSNLF program, which is a fee the Federal Reserve charges lenders that lenders can pass on to the borrower.
Terms
Main Street Loans come with a four-year term, with the option of deferment for one year. It’s unclear if interest continues to accrue during deferment, as of April 21, 2020. But it’s likely it will, based on other government loan programs. This makes your loan more expensive in the long run, so you might want to start making repayments immediately if you’re able to.
Main Street Lending for nonprofits
The Federal Reserve also has two loan programs that nonprofits can qualify for: A new loan program and an expanded loan program. These come with different loan amounts, lending limits and requirements than the options available to for-profit businesses.
The main difference is how much you can borrow.
| Nonprofit new loans | Nonprofit expanded loans | |
|---|---|---|
| Minimum | $250,000 | $10 million |
| Maximum | $35 million | $300 million |
| Terms | 5 years | 5 years |
| Rates | Prime + 3% | Prime + 3% |
Loan amounts are partially based on your annual revenue in 2019. You can borrow no more than the nonprofit’s average quarterly revenue in 2019.
Can my nonprofit qualify?
This program is meant to help larger nonprofits like schools, hospitals and social service organizations. Requirements are the same for both programs.
- Registered as a 501(c)(3) or 501(c)(19)
- At least five years in business
- At least 10 employees
- Operating margin of at least 2% in 2019
- Enough funds to cover at least 60 days of expenses
- Debt repayment capacity over 55%
- Nondonational revenue equal to at least 60% of operating expenses between 2017 and 2019
How do repayments work?
For both loans, repayments increase depending on the year of the term:
- Year 1: No repayments required
- Year 2: Interest-only repayments
- Years 3–4: Pay off 15% of principal, plus interest each year
- Year 5: Pay off remaining 70% of the principal, plus interest
This repayment program is designed to make it easier for nonprofits to afford the cost of this loan while the economy recovers. But it’ll cost you more if you only make the minimum repayments. Pay what you can, when you can, to lower the cost of this loan.
Where can I get a Main Street Loan?
Main Street Loans will be available through the following types of lenders:
- Insured depository institutions. This includes any federally insured lender, such as your bank or credit union.
- Bank holding companies. This includes larger companies that don’t typically participate in banking, such as JP Morgan Chase.
- Savings and loan holding companies (SLHCs). This includes companies that control savings and lending institutions, like Charles Schwab.
How do I apply?
You can apply by submitting an application directly through an eligible lender. The Federal Reserve hasn’t issued any additional information about the application process — or when the applications will be available — as of April 21, 2020.
Don’t have time to wait? Apply for an online business loan today
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How can I use the funds?
The Federal Reserve requires businesses to primarily use the funds to cover payroll costs and retain employees, though there are no specific guidelines on which portion of the loan should go toward those expenses.
You can’t use the loan to refinance a loan or line of credit, or make debt payments.
How do repayments work?
Borrowers make repayments directly to the lender, which then pays the SVP its portion of the loan. These loans come with monthly repayments, which begin one year after your loan is disbursed.
Since there’s no prepayment penalty, consider starting repayments as soon as possible during the deferment period to save on interest.
How does it compare to the Paycheck Protection Program?
The deadline for the Paycheck Protection Program was extended to August 8, 2020.
The Main Street Loan Program offers higher loan amounts, as well as fewer eligibility restrictions on who can qualify and how you spend your funds — though it’s mainly intended to cover payroll costs. It’s also available to larger businesses than the SBA’s Paycheck Protection Program (PPP).
However, it comes with a higher rate that’s variable, which makes it more difficult to predict the cost than the PPP’s 1% fixed interest rate. It also doesn’t come with the option for forgiveness, which you can get with the PPP. And while the Main Street Loan Program’s terms and deferment period are longer, making repayments more affordable, both can also lead to a higher loan cost.
Are Main Street Loans a viable Plan B to Paycheck Protection Loans?
3 tips for borrowing through the Main Street Loan Program
Here are a few pointers to make the most of this loan program:
- Consider applying through your bank. Having an existing relationship with your lender can make it easier for you to qualify for this loan, especially during the beginning of the program.
- Check for updates. It’s possible that the Federal Reserve will make extensive changes to how this program works, even after it launches. Check back on this page often — we’ll continue to update it as new details emerge.
- Calculate your projected revenue a year from now. Try to only take out a loan with monthly payments that you believe your business can reasonably cover based on your projected revenue a year from now, when repayments begin.
Bottom line
The Main Street Lending Program can be a helpful option for businesses that are too large to qualify for an SBA loan. But its high minimum loan amount and relatively high rates for a coronavirus assistance loan make it one of the more expensive government financing options out there.
Read our guide to business loans during the COVID-19 outbreak to learn about more of your options.
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