Article written by:
Jennifer Zimmerman, CPA
  Senior Manager, Tax & Business Advisory Services
Rebekah Smith, CPA, CFF, CVA, MAFF
   Director of Forensic & Dispute Advisory Services

Article originally published April 24, 2020
Last updated May 5, 2020 


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 April 9, 2020, the Federal Reserve Board announced a variety of additional loan programs, including the creation of the ‘Main Street Lending Program’ (MSLP), which will provide $600B in credit to eligible businesses that were in sound financial condition before the pandemic. The comment period on the loan ended on April 16th and more than 2,200 letters from individuals, businesses, and nonprofits were received. As a result, the Board decided to expand the loan options available and increase the maximum size of businesses eligible from the initial terms to expand the pool of eligible borrowers. Other notable changes announced on April 30th include changes in payment terms, a decrease in the minimum loan size from $1MM to $500K for certain loans, and a change in the interest rate.

This program is especially attractive to taxpayers that were too large to qualify for the Small Business Administration’s Paycheck Protection Program (PPP). Unlike the PPP, there is no potential debt forgiveness portion, but like the PPP, banks and other authorized lenders will be administering the program. Recipients of the PPP funds may also apply for the MSLP.

Borrower Requirements

Eligible businesses can have up to 15,000 (increased from 10,000) employees or up to $5B in annual revenue (increased from $2.5B). Employees and revenues must be aggregated with other affiliated entities to determine thresholds. Among other items, eligible borrowers must certify that the following statements are true:

  • Company was created or organized in the United States or under the laws of the United States prior to March 13, 2020, with significant operations in and a majority of employees based in the US.
  • Borrower is not an Ineligible Business as modified and clarified by SBA regulations for purposes of the PPP, which included businesses such as hedge funds, lending institutions and those involved in illegal activities. (The Federal Reserve may further modify the application of these restrictions to Main Street.)
  • Borrower will refrain from using the proceeds to repay certain other loan balances.
  • Borrower will commit to making reasonable efforts to maintain its payroll and retain employees during the term of the loan.
  • Borrower must certify that they have a reasonable basis to believe that, as of the date of origination, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
  • Borrower will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(C)(3)(A)(ii) of the CARES Act.
    • For S corporation or other tax pass-through entities, distributions may be made to the extent reasonably required to cover owners’ tax obligations in respect of the entity’s earnings.
  • Borrower must certify that it is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.

The initial press release indicated that these loans are intended to support businesses that were in good financial standing before the crisis and require these funds to continue operations, maintain payroll, and retain workers. The press release on April 30th indicated that a separate approach will be evaluated to meet the needs of nonprofit organizations.

Terms of the Program

The MSLP now offers three options, increased from two:

1)      The Main Street New Loan Facility (New Loan) (pdf document)

2)      The Main Street Priority Loan Facility (Priority Loan) (pdf document)

3)      The Main Street Expanded Loan Facility (Expanded Loan) (pdf document)

All loan facilities share the same eligible borrower criteria, maturity, interest rate, deferral of principal and interest for one year, and ability of the borrower to prepay without penalty. The primary differences between the options relate to maximum loan sizes and how the loan interacts with existing outstanding debt. The Priority Loan includes a modification to allow the Borrower to refinance existing debt owed to a lender at the time the loan is originated, and the Expanded Loan necessarily includes an existing loan from the Lender.

**The terms listed here have been updated – See the article “Main Street Lending Program Expanded – Again

New Loans

Priority Loans

Expanded Loans

Origination Date After April 24, 2020 After April 24, 2020 On or before April 24, 2020 (added to existing loan already with lender)
Term 4 Years 4 Years 4 Years
Rate LIBOR +3% LIBOR +3% LIBOR +3%
Minimum Loan Size $500K $500K $10MM
Maximum Loan Size Lesser of (a) $25MM or (b) an amount that doesn’t exceed 4x the borrower’s 2019 EBITDA (including existing outstanding and undrawn committed debt) Lesser of (a) $25MM or (b) an amount that doesn’t exceed 6x the borrower’s 2019 EBITDA (including existing outstanding and undrawn committed debt) Lesser of (a) $200MM, (b) 35% of undrawn committed bank debt, or (c) an amount that doesn’t exceed 6x the borrower’s 2019 EBITDA (including existing outstanding and undrawn committed debt)
Payments (year one deferred for all with unpaid interest capitalized) Year 2-4: 33.33% each year Year 2: 15%
Year 3: 15%
Year 4: 70%
Year 2: 15%
Year 3: 15%
Year 4: 70%
Risk Retention by Lender 5% 15% 5%


Need to Prove Losses

Borrowers should be prepared to demonstrate:

  1. Covered losses sustained from COVID-19 disruption and continuing operations are at risk.
  2. Good-faith efforts were taken to maintain payroll and retain employees in light of capacities, economic environment, available resources, and business need for labor, and
  3. Financial statements, employment levels, payroll records, debt and debt service schedules, financial needs for the remainder of 2020, operating plans, and anticipated use of proceeds.
These requirements are very different from the PPP loan, which required the borrower to certify that the uncertain economic times made the loan necessary to support operations but not to quantify or measure its damages. For companies to be successful in obtaining a Main Street or Priority loan, quantifying COVID-19 losses appears to be a key element. To do so, a company will have to project both performances “but for” the COVID-19 virus and performance due to the COVID-19 virus. These calculations are not unlike a normal damages calculation that one would see in a business dispute. Part of the calculation then also appears to be putting together a plan that demonstrates the use of the proceeds.

Next Steps

Eligible businesses seeking Main Street loans should first consult with their bank to ensure that their bank will be offering the Main Street loans and has the capacity to accept applications. GBQ’s COVID-19 response team is tracking additional information on these loans. As the loan facilities are introduced to the market, it is possible that terms could change once more from the items listed above. We are ready to assist with understanding your options during these challenging times.


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