Article written by:
Jennifer Zimmerman, CPA
Senior Manager, Tax & Business Advisory Services
| NOTE – The loan terms referenced in the article have changed as of June 8, 2020. See the article “Main Street Lending Program Expanded – Again” for the latest terms information. |
On May 27th, the Federal Reserve Bank of Boston released additional information for potential borrowers in the Main Street Lending Program (MSLP). The program is expected to launch in the coming days according to Federal Reserve Chairman Jerome Powell. The MSLP offers loans with low-interest, 4-year terms to eligible borrowers that were in good financial standing before the pandemic. Unlike the PPP, these loans are not forgivable and have specific criteria related to loan size.
One of the main facets of the program is the calculation of the maximum loan amount. The program’s minimum amount is either $500K or $10MM, depending on whether you have an existing debt with the lender, and the maximum loan amount is a function of 2019 EBITDA and current outstanding or committed debt. An overview of the eligibility criteria and loan options can be found in the article Main Street Lending Program: What We Know.
For example, the Main Street New Loan Facility (New Loans) which is one of three facilities available, has a minimum loan amount of $500K and a maximum loan amount of the lesser of $25MM or an amount that, when added to the borrower’s existing outstanding and undrawn available debt, does not exceed four times the borrower’s 2019 EBITDA. If a borrower shows $2MM of EBITDA, but has an eligible outstanding and undrawn available debt of $10MM, they would not be eligible for additional funds under this program, as the maximum loan value yields an amount lower than the minimum loan amount.
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Example:
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Minimum Loan Size
Maximum Loan Size |
$500K
4 x 2019 EBITDA of $2MM = 8MM Less debt of 10MM = negative 2MM |
As mentioned in previous articles, those interested in this program will want to consult with their lender and determine their options. Many of the items referred to above, such as 2019 EBITDA, will ultimately be defined by the lender. Since the MSLP was first announced, terms have been changed and may change again. The FAQs state that the Federal Reserve is continuing to evaluate issues. GBQ is available to assist with understanding your options when it comes to the relief packages offered in response to the Coronavirus pandemic.
