The Main Street Lending Program is a program announced April 9, 2020, in which the Federal Reserve will purchase loans that banks give to small and mid-sized businesses. The Fed will purchase between 85 or 95% of each loan (depending on the type of loan). This means that the bank must keep 5% or 15% of the loan on its books to discourage irresponsible lending. The program was expanded on April 30, adding a third category of loan, changing the minimum and maximum loan sizes for each category of loan given, as well as the stake the bank must keep for some loans, among other things.

The program is designed to keep credit flowing to small and mid-sized businesses that were in "good financial standing" before the onset of the COVID-19 coronavirus crisis, but which are now under extreme stress due to stay-at-home and business closure orders from state and local governments.

Key Takeaways

  • The Main Street Lending Program purchases loans that banks issue to small and mid-sized businesses.
  • Banks must retain a 5% or 15% stake in these loans, depending on the type of loan.
  • Eligible businesses also may utilize other emergency lending programs.

Details on the Main Street Lending Program

The Main Street Lending Program will offer 4-year loans to eligible businesses, with interest and principal payments deferred for one year. Under the program, eligible banks may extend new loans to eligible businesses, or increase the size of existing loans. The Fed will purchase 85-95% of a given loan's value, depending on the type of loan. Total purchases by the Fed are capped at $600 billion. Under the CARES Act, the U.S. Treasury make an initial equity investment of $75 billion from its Exchange Stabilization Fund (ESF) in the Main Street Lending Program.

To be eligible, a business must:

  1. Have been established before March 13, 2020,
  2. Be eligible for Small Business Administration loans
  3. Must have 15,000 employees or fewer or have had an annual revenue in 2019 of less than $5 billion
  4. Be "created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States"
  5. Have not participated in the Primary Market Corporate Credit Facility (PMCCF)
  6. Not have received "support pursuant to the Coronavirus Economic Stabilization Act of 2020."

Businesses that receive loans under the Paycheck Protection Plan (PPP) may also be eligible for the Main Street Lending Program. However, a key proviso is: "Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act."

Meanwhile, to support the PPP, the Fed has launched a related initiative called the Paycheck Protection Plan Lending Facility (PPPLF).

The Main Street Lending Program will be administered through a single special purpose vehicle (SPV). However, the program actually consists of three separate parts, the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF). The MSPLF was added in the April 30, 2020 expansion of the program. Businesses can only participate in one of these.

Under the Main Street New Loan Facility (MSNLF), the Fed may purchase unsecured term loans that were originated on or after April 24, 2020, and were between $500,000 and the lower of $25 million in value or an amount that, when added to current debt, doesn't exceed exceed four times its 2019 EBITDA.

Under the Main Street Priority Loan Facility (MSPLF), the Fed may purchase unsecured term loans that were originated on or after April 24, 2020, and were between $500,000 and the lower of $25 million in value or an amount that, when added to current debt, doesn't exceed exceed six times its 2019 EBITDA. These loans, the bank needs to keep 15% of the loan.

Finally, under the Main Street Expanded Loan Facility (MSELF), the Fed may purchase term loans originated before April 24, 2020, and between $10 million and the lesser of $200 million, 35% of outstanding and available debt, or an amount that when added to outstanding and available debt, doesn't exceed six times its 2019 EBITDA.