Main Street Lending Program: New Relief for Small to Mid-Sized Businesses

COVID-19 Update

Date: April 14, 2020

Key Notes:

  • $600 billion Main Street Lending Program established under the CARES Act to help small and medium-sized businesses.
  • Businesses with up to 10,000 employees may be eligible.
  • Loan amounts range from $1 million to $150 million, based on eligibility.

On April 9, the Treasury Department and Federal Reserve released details about the new $600 billion Main Street Lending Program, which is designed to help shore up the economy. The program will be implemented using funds appropriated under the CARES Act and will permit small and medium-sized businesses to obtain financing through eligible lenders.

The Main Street Lending Program offers two new loan facilities: the Main Street New Loan Facility (MSNLF) for new term loans and the Main Street Expanded Loan Facility (MSELF) to increase the size of existing term loans originated before April 8, 2020. The MSNLF is geared toward smaller businesses, while the MSELF provides for larger loans. The goal of both facilities is to provide access to additional financing options to small and mid-sized companies that were in good financial standing before the COVID-19 crisis. Companies that took advantage of the Payroll Protection Program (PPP) may also receive Main Street loans, but companies may not access both the MSNLF and the MSELF. Unlike loans extended under the PPP, Main Street loans are not forgivable.

Who Is Eligible to Be a Borrower?

Companies with up to 10,000 employees or less than $2.5 billion in 2019 annual revenue that meet the additional requirements set forth below are eligible for loans under the Main Street Lending Program. Contrary to the terms of the PPP, affiliates of the potential borrower will not be considered in the eligibility determination and how applicants must count their employees. A minimum size requirement (for instance, over 500 employees) is not currently contemplated. To be eligible, a borrower:

  • Must be a business that is created or organized in the United States or under U.S. laws. Currently, there is no limit on foreign ownership of the U.S. business
  • Must have significant operations in and a majority of its employees based in the United States
  • Cannot also participate in the Primary Market Corporate Credit Facility
  • Must be solvent (Section 13(3) of the Federal Reserve Act)
Loan Features

The terms of all Main Street loans (under the MNSLF and MSELF) are:

  • Four-year maturity
  • Principal and interest payments deferred for one year
  • Interest rate of SOFR + 250 - 400 bps
  • Minimum loan size of $1 million
  • Prepayments are permitted without penalty
  • Fees
    • The borrower will pay an origination fee of 100 bps on the principal amount of the new loan or the increase to an existing loan
    • The lender may also require the borrower to pay the facility fee assessed to the lender of 100 bps on 95% of the principal amount of the new loan

Additionally, new loans extended under the MSNLF will be unsecured, while expanded loans extended under the MSELF will be secured by the same collateral securing the existing facility on a pro rata basis.

Loan Amount Limitations
  • The maximum amount of a loan under theMSNLF will be equal to the lesser of
    • $25 million, or
    • an amount, that when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times EBITDA for 2019
  • The maximum amount of a loan under theMSELF will be equal to the least of
    • $150 million,
    • 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or
    • an amount, that when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times EBITDA for 2019 (the “EBITDA leverage ratio”)

Note that undrawn bank debt must be included in the calculation of debt and that EBITDA is likely to be a straight calculation without any add-backs.

Borrower Certifications

Borrowers will be required to certify the following under both the MSNLF and MSELF:

  • The loan proceeds will not be used to repay or refinance any other existing debt, with the exception of mandatory principal payments
  • The borrower will not seek to cancel or reduce any existing outstanding lines of credit
  • The financing is necessary because of exigent circumstances presented by the COVID-19 pandemic
  • The loan proceeds will be used to make reasonable efforts to maintain payroll and retain employees during the loan term
  • The borrower meets the required EBITDA leverage ratio
  • The borrower must comply with the compensation, stock repurchase, dividend and capital distribution restrictions under section 4003(c)(3)(A)(ii) of the CARES Act, which generally restrict a borrower for 12 months following the satisfaction of the loan from buying back publicly traded equity of the borrower or parent and issuing dividends or declaring distributions, and from increasing compensation for highly compensated employees and officers and paying severance or termination benefits above a certain threshold
  • The borrower meets all program eligibility requirements, including adhering to the conflict of interest prohibitions in section 4019(b) of the CARES Act, which generally prohibit any business directly or indirectly owned by the president, senior executive branch officials or members of Congress, or certain of their immediate family members, from receiving any relief funds under the CARES Act
Considerations for Potential Borrowers

Further details on obtaining, completing and/or submitting applications for loans under the Main Street Lending Program have not been released. Main Street loans will be issued until September 30, 2020, unless the program is oversubscribed earlier or extended. The Federal Reserve is soliciting comments from various stakeholders regarding the program’s intended effectiveness and utility until April 16, so there may be adjustments as a result of those comments. As loans under the Main Street Lending Program will likely be made on a first-come, first-served basis, businesses should consider starting a conversation now with their existing lenders, pending the release of further guidance. When applying, companies should be mindful of existing debt agreements, as well as provisions within their governance documents, shareholder agreements or other key contracts that may restrict their ability to borrow funds.


For more information, please contact:

Katherine D. Brandt

Tarnetta Jones

Emma Off

Additional Resources

We have assembled a firmwide multidisciplinary task force to address clients’ business and legal concerns and needs related to the COVID-19 pandemic. Please see our COVID-19 Task Force page for additional information and resources.

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