On Monday July 6 the Main Street Lending Program became fully operational. This program is meant to shore up small and mid-sized American businesses that were in good financial standing prior to the pandemic. However, the program might have difficulty garnering support from the nation’s largest financial institutions—lenders like JP Morgan and Citibank have not signed onto the program. In contrast, Wells Fargo has signed onto the program, but the company has not yet committed to making loans to new customers and will only lend to existing customers.
The Main Street Lending Programs need banks to operate. The bank makes a loan to a qualifying business on generous terms and the Federal Reserve then buys 95% of the loan from the bank, minimizing the bank’s risk in the transaction. The program is said to have a capacity of up to $600 billion dollars, but it has had a relatively slow start as banks and businesses learn to navigate the complicated regulatory scheme. A Goldman Sachs analysis suggested that larger banks have eschewed the Main Street Lending Program over fears that the loan applicants will be mostly failing businesses and concern over technical failings that plagued the administration of the Paycheck Protection Program.
To learn more about how you can utilize the Main Street Lending Program, contact a BrownWinick attorney.
Original Post: June 25, 2020
The Federal Reserve released further information concerning the Main Street Lending Program on June 20th. Three facilities are used to distribute loans: Main Street New Loan Facility (MSNLF), the Main Street Expanded Loan Facility (MSELF) and the Main Street Priority Loan Facility (MSPLF).
The eligibility criteria remain the same across all three facilities. For a business to be eligible for a loan it must either 1) have 15,000 or fewer employees or 2) show that its revenue for 2019 was below $5 billion. Borrowers of the Main Street Lending Program have the option to defer principal payments for two years and interest payments for one year. The loans issued under the program has a maturity date of five years.
The Federal Reserve further clarified that the restrictions on using the loan to pay an existing debt vary depending on the specific loan the borrower is obtaining from the Main Street program. For both the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF) the borrower must agree not to use the loan to pay any part, principal or interest, of an existing debt unless the debt is mandatory and due. However, under the Main Street Priority Loan Facility (MSPLF) the borrower may refinance an existing debt to a lender other than the Federal Reserve at the time of the origination of the loan. Beyond the time of origination, the borrower may not use the loan to pay an existing debt unless it is mandatory and due.
Under the Main Street program, a debt is “mandatory and due” if it the borrower is contractually obligated to pay on a specific date; on that date, the borrower may use the loan to pay the principal or interest. However, under the current program, a borrower may not make principal or interest payment on another loan ahead of its scheduled payment time.
If you have questions about the Main Street Lending Program, please contact your BrownWinick attorney or one of our corporate law attorneys.