Out of this amount, the Treasury Department is required to seek the implementation of a program that provides financing to banks and other lenders that make direct loans to certain eligible businesses, including nonprofit organizations, with between 500 and 10,000 employees.
The Act requires that the loans administered under this program feature an annual rate of interest not greater than 2% per annum, and allow for at least a 6-month deferral of payments of principal and interest after the loan date. Unlike debt issuable under the PPP, the loans are not forgivable.
In order to receive one of these loans, in addition to becoming subject to Treasury Department oversight, the eligible business or nonprofit organization will be required to make certain good-faith certifications, such as that:
On March 23, 2020, the Federal Reserve Board announced that it is developing the Main Street Business Lending Program to support lending to eligible small-and-medium-sized businesses that would not qualify for SBA programs due to size limits, but are also facing liquidity constraints.
On April 9, 2020, the Fed provided additional details on the Main Street program, indicating that it will utilize $75 billion from the Treasury Department’s appropriations noted above to establish a facility that will purchase up to $600 billion of newly issued and existing loans from eligible lenders that provide debt financing to small and mid-size businesses, defined as concerns in good standing prior to the COVID-19 crisis that employ up to 10,000 workers or with revenues of less than $2.5 billion. Key features of these loans are as follows:
The Fed’s term sheet for the Main Street loans issued on April 9, 2020 is available here. The Main Street loans will be directly administered through private banking institutions which will sell 95% participations in the loans to a special purpose vehicle created by the Fed, with lenders retaining 5% of the loans.
In order to obtain one of these loans, in addition to making the certifications required by the Treasury Department noted above, borrowers will need to make a series of attestations as part of the loan application, including:
The application process for the Main Street lending program has yet to be established, although we anticipate the process will be streamlined in a fashion similar to the PPP. We will continue to monitor the development and availability of this program and will provide further guidance to you as it becomes available.
The SBA Focus Group of the COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the PPP loan program is implemented.
Author Justin Csik is an associate in the Corporate & Securities Department at Klehr Harrison.