UPDATED – COVID-19 Economic Relief Extended to Mid-Size Businesses by Joel Glick, CPA/CFF, CFE, CGMA
Posted on April 11, 2020
by
Joel Glick
The Federal Reserve Bank has announced it will expand the eligibility and scope of its Main Street Lending Program, introduced on April 9 to provide up to $600 billion in stimulus to businesses suffering under the economic strain of the COVID-19 health crisis. While the recent guidance adds a third loan facility and extends loan availability to include a larger pool of small and mid-size businesses, it does not provide a start day for the program.
Borrower Requirements
According to the Fed, the Main Street Lending Program will apply to U.S. businesses with between 500 and 15,000 employees (up from a maximum of 10,000 employees) or to those businesses with 2019 revenue of up to $5 billion (double the previous limit of $2.5 billion).
Qualifying businesses must be for-profit entities with “significant operations” and “a majority” of their employees located in the U.S. When a business has foreign operations, it must aggregate revenue and the number of qualifying full-time, part-time and temporary employees across its foreign and domestic affiliates. In addition, all borrowers must attest that they will use loan proceeds to retain employees and maintain payroll, and they will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under the CARES Act.
While lenders do not have to independently verify borrowers’ eligibility for Main Street loans, they will be required to abide by their underwriting standards to make the final determination of loan approval.
Loan Terms
The Fed’s recent announcement establishes three separate loan programs:
- the Main Street New Loan Facility (MSNLF),
- the Main Street Priority Loan Facility (MSPLF) and
- the Main Street Expanded Loan Facility (MSELF).
Loans under all facilities are now based on LIBOR plus 30 basis points with a four-year maturity date and one-year deferral of principal and interest payments. However, the repayment terms of each facility vary, with MSNLF’s requiring one-third of principal to be paid at the end of years two, three and four, whereas the MSPLF and MSELF require payment of 15 percent of principal at the end of years two and three and a final 70 percent of principal payments at the loan maturity date at the end of the fourth year. Each of the loans available under the Main Street Lending Program also differ by size, risk retention and existence of borrower’s other loans and debt instruments.
Loan Size
The size of the loan available to eligible borrowers depends on the type of loan facility.
The minimum loan amount available for New loans is $500,000 thereby offering more borrowing options to a wider pool of small and mid-size businesses. The maximum amount available for eligible MSNLF borrowers is the lesser of 1) $25 million or 2) an amount that, when added to a borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). For Priority loans, there is a $500,000 minimum with a maximum of the lesser of 1) $25 million or 2) an amount that, when added to a borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). By contrast, Expanded loans start at $10 million and can reach the lesser of 1) $200 million or 2) 35 percent of existing outstanding undrawn available debt, or an amount that, when added to outstanding and undrawn available debt, does not exceed six times adjusted 2019 EBITDA.
Interaction with the SBA’s Payroll Protection Program
The Fed explained that businesses receiving loans under the SBA’s payroll protection program (PPP) may also qualify for a Main Street loan only when they make “reasonable efforts” to maintain their payroll and retain employees during the term of loan.
About the Author: Joel Glick, CPA/CFF, CFE, CGMA, is a director with Berkowitz Pollack Brant’s Forensic and Advisory Services practice, where he consults with businesses and works on fraud and forensic investigations and matters involving economic damages and insolvency while also serving as an expert witness in state and federal courts. He can be reached at the Miami CPA firm’s office at 305-379-7000 or info@bpbcpa.com
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