Federal Reserve Expands Main Street Lending Program
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On June 8, 2020, the Federal Reserve announced important changes to the Main Street Lending Program. The Main Street Lending Program (MSLP) is funded in part by a $75 billion equity investment from the Treasury Department appropriated from the CARES Act. The goal of the program is to provide low-interest, deferred loans to support small and medium-sized businesses.
06.10.20
The new changes include:
- Lowering the minimum loan size for certain loans to $250,000 from $500,000.
- Increasing the maximum loan size for all loan facilities.
- Increasing the term of each loan option to five years, from four years.
- Extending the repayment period for all loans by delaying principal payments for two years, rather than one.
- Raising the Reserve Bank’s participation to 95% for all loans, including for higher-risk loans under the Main Street Priority Loan facility.
The Federal Reserve also released an updated FAQ and updated terms sheets for each of the three lending facilities under the MSLP. Small and medium-sized businesses interested in the MSLP can apply for loans through their existing or a new private lender that is eligible and participating in the program. The official start date of the program is expected to be released shortly.
Background
This is not the first time the Federal Reserve has updated the terms of the MSLP. On April 30, the Federal Reserve released revised term sheets and Frequently Asked Questions for the MSLP. Among the updated April 30 terms were changes to expand the criteria for businesses eligible for loans, changes to the interest rate, reduction of the minimum loan size and the establishment of a third lending facility, the Main Street Priority Loan Facility, intended for higher leveraged borrowers.
On April 9, the Federal Reserve released initial details on the MSLP. The program authorizes the Federal Reserve to establish a special purpose vehicle (SPV) to purchase up to $600 billion of newly issued and existing loans from eligible lenders. The lenders in turn provide debt financing to small and mid-size businesses. The loans will be directly administered through private banking institutions who will sell majority participations in the loans to the SPV, with lenders retaining a small portion of the loans.
We will continue to monitor new information as it is released and will provide further guidance to you as it becomes available, including the anticipated start date for the program.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Author Justin Csik is an associate in the Corporate & Securities Department at Klehr Harrison.