This week the Federal Reserve established several new programs to supply liquidity to businesses and banks to maintain operations during the COVID-19 pandemic. The Main Street Lending Program is aimed at helping small and medium sized businesses. This new loan program will offer businesses in good financial standing before the crisis the ability to take out loans if they commit to reasonable efforts to maintain payrolls and retain workers.
In order for businesses to qualify they must have fewer than 10,000 employees and less than $2.5 billion in revenue. The loan will have a 4-year term with principle and interest payments deferred for one year. Banks can charge 2.5-4% above the overnight interest rate (currently .01%) plus an origination fee on these loans and can provide loan amounts ranging from $1 million to $25 million depending on the borrower’s loan capacity. The Federal Reserve is offering banks liquidity to originate $600 billion in new loans or increases to existing loans. Certain restrictions will be put in place on companies taking out these loans such as limits on wage increases for highly compensated employees, stock repurchases, and restrictions on dividends. This restriction would affect businesses formed as S-Corps that pass tax payments to owners as disbursements. HARDI and several other industries are working on a fix for this issue either through the Federal Reserve, Treasury, or a change to the CARES Act.
Those small businesses that have taken advantage of the Paycheck Protection Program are also eligible for the Main Street Lending Program, however limits on what payroll periods the funds can be used for still apply (no double dipping). In addition to the Main Street Lending Program, the Federal Reserve is also actively working with banks on issues surrounding asset caps that prevent banks from lending further funds. There are several reports of major banks hitting their asset caps and being unable to issue more PPP loans. With this new Fed program these banks will have access to additional liquidity to continue to issue loans to small businesses, it is important for any business that was denied a PPP loan because the bank had asset cap issues to reengage with their lenders.
For businesses interested in applying for a Main Street Lending Program loan, please reach out to your normal bank or lending institution to see if they are participating in this program.
For more COVID-19 resources, visit our dedicated resource page.