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Harnessing the Main Street Lending Program

Daniel F. Rahill, CPA, JD, LL.M., CGMA

A CPA’s roadmap to the $600 billion supply of credit for small and mid-sized businesses.

CPAs and financial professionals of all stripes are busy doing business triage these days. From the COVID-19 pandemic to the subsequent recession and the national unrest and protests we’ve seen so far in 2020, these are difficult times for all—and we can attest that balance sheets for businesses of all sizes have taken a hit, too. Thankfully, small and mid-sized businesses are being given a new tool to help them stay afloat, retain their staff, and continue to serve their communities.

On April 9, 2020, the Federal Reserve Board announced the Main Street Lending Program, a COVID-19 relief effort established to purchase up to $600 billion in loans to support small and mid-sized U.S. businesses. In the weeks since, the Fed has continued to revise, update, and expand the program to help more businesses, and on June 15, the Fed launched the program, inviting lenders to register so they can offer loans immediately. Here’s what we know about the program, which has the potential to be enormously helpful to CPA firms and their clients in these tough times

The Three Facilities

The Main Street Lending Program is not yet fully operational, and the specifics of the program have changed multiple times since April. As of their latest update on June 8, the program will target companies with up to $5 billion in annual revenue and fewer than 15,000 employees. Its most recent changes widened eligibility and made changes to terms that make borrowing more doable for smaller businesses. The program will operate through three facilities, outlined below.

The Main Street New Loan Facility (MSNLF)

This lending facility will cater to new borrowers, offering five-year terms on loans with interest deferred for one year. They will offer loans at a minimum of $250,000 and a maximum of $35 million, or “an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA,” whichever is lesser, according to the Fed’s website. The principal repayment will be deferred for two years, and then in year three go up to 15 percent, remain at 15 percent in year four, and go up to 70 percent in the fifth and final year. Interest is deferred for one year and the interest rate will be LIBOR plus 3 percent.

The methodology used by lenders to calculate adjusted 2019 EBITDA must be the methodology they used for similarly situated borrowers before April 24, and the loans may not be, at origination or during the term of the loan, junior in priority to bankruptcy to the borrower’s other unsecured loans or debt instruments.

The Main Street Priority Loan Facility (MSPLF)

This lending facility will serve borrowers who have existing debt but manageable fiscal needs. Similar to the MSNLF, they will offer five-year terms and a minimum loan of $250,000. The maximum loan here is larger, “the lesser of $50 million, or an amount that, when added to the outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA.” The principal and interest repayment on these loans follow the same pattern as the MSNFL.

MSPLF loans must always be either senior to or equal to the borrower’s other non-mortgage loans or debt instruments in terms of priority and security. At origination, borrowers may refinance existing debt with a lender that is not the Main Street Program lender. After origination, only mandatory debt or interest payments will then be allowed.

The Main Street Expanded Loan Facility (MSELF)

This facility will cater to borrowers with existing loans or credit lines with major fiscal needs. The minimum loan size is $10 million, and the maximum is “the lesser of $300M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA.” Like the other two facilities, the loans will have a five-year term, with interest payments deferred for one year and an interest rate of LIBOR plus 3 percent. They will also follow an identical principal repayment plan.

To be eligible for “upsizing” an existing loan, the existing loan or revolving credit line must have been originated on or before April 24, 2020 and must have a remaining maturity of at least 18 months. The lender may extend the maturity of an existing loan or revolving credit line at the time of upsizing for the underlying instrument to satisfy the 18-month remaining maturity requirement. MSELF loans must always be either senior or equal to the borrower’s other non-mortgage loans or debt instruments in terms of priority and security.

The Fine Print

Securing the Loans

MSNLF and MSPLF loans may be secured or unsecured, while MSELF loans must be secured if the underlying loan is secured. Any collateral securing the underlying loan must secure the MSELF loan on a pro rata basis, and if the borrower defaults, the Main Street Program and lender would share equally in any collateral available relative to their proportional interests in the loan. Lenders can require borrowers to pledge additional collateral to secure an MSELF loan as a condition of approval. The appendices to the FAQs provide a checklist of items required to be included in the loan document, model covenants, and financial reporting provisions.

The FAQs added that if a borrower defaults on its payment obligations under a loan or becomes subject to a bankruptcy proceeding, the special purchase vehicle (SPV) set up to implement the program has the option to elevate its participation to assignment without obtaining the borrower’s, eligible lender’s, or other parties’ consent. However, the SPV will, in the first instance, rely on the eligible lender to follow market-standard workout processes and to exercise the same duty of care in approaching that process as it would exercise if it retained a beneficial interest in the entire loan. Generally, the SPV will only elevate such a defaulted loan if the eligible lender’s economic interest is not aligned with the SPV’s interest or if a particular loan is large relative to the SPV’s other loans.

Loan Forgiveness and Fees

Unlike the popular Paycheck Protection Program (PPP) loans, Main Street Lending Program loans will not be eligible for loan forgiveness. However, in the event of restructurings or workouts, the SPV may agree to reductions in interest (including capitalized interest), extended amortization schedules and maturities, and higher priority “primer” loans.

MSNLF and MSPLF borrowers will pay an origination fee of 1 percent of the principal amount to the lender. MSELF borrowers will pay a fee of 0.75 percent of the principal amount to the lender. Lenders will then be required to pay the Main Street Lending Program a transaction fee of 1 percent of the principal amount of any MSNLF or MSPLF loan and 0.75 percent of the principal amount of any MSELF loan at the time of origination or upsizing; this fee can be passed on to the borrower.

Borrower Eligibility

Businesses with fewer than 15,000 employees and 2019 revenues of $5 billion or less are eligible for Main Street Lending Program loans. Full-time, part-time, seasonal, and other employees count toward the employee total, but volunteers and independent contractors do not. U.S. GAAP audited financials or receipts for fiscal year 2019 as reported to the IRS can be used to calculate revenue.

These businesses must have been created or organized before March 13, 2020 and must be in good financial standing before the COVID-19 crisis. They also must be U.S. companies, with significant operations in and a majority of employees based in the U.S. Some businesses are not eligible, such as banks, life insurance companies, and most government-owned companies. Businesses that received support from Section 4003(b)(1)-(3) of the CARES Act, like airline carriers, are also ineligible. However, businesses that have taken advantage of the PPP are still eligible.

Private equity firms that were ineligible for PPP loans will also be ineligible for the Main Street Lending Program, but a portfolio company of a private equity fund may be eligible if it meets all other criteria after including the business’s affiliated companies. The affiliation test applies to private equity-owned businesses in the same manner as any other business subject to outside ownership or control. In addition, private equity access will be further limited by the rule that affiliated groups can participate in only one Main Street facility. Much of the real estate industry should be able to participate.

On June 15, the Fed acknowledged the unique needs of non-profit organizations and proposed to add non-profits to the list of eligible borrowers. To be eligible, non-profit organizations must be tax-exempt, have at least a five-year history of operations, endowments of no more than $3 billion, and meet certain financial thresholds. Organizations must have at least 50 employees and no more than 15,000 employees, or annual revenue of $5 billion or less. The Fed will collect public comments on the proposal until June 22 and intends to finalize term sheets for non-profits quickly after the comment period ends.

Borrower Certifications

Borrowers must certify that they will not use loan proceeds to repay principal or interest on any other debt until the Main Street loan is fully repaid, other than mandatory principal or interest payments that are due, or, in the case of MSPLF loans, debt owed to a lender other than the MSPLF lender refinanced at the time of the origination of the loan. They also cannot seek to cancel or reduce any of their committed lines of credit.

Borrowers must also certify that they have a reasonable basis to believe that they have the ability to meet their financial obligations for at least the next 90 days after the loan and will not need to file bankruptcy during that period. They will need to follow compensation, stock repurchase, and capital distribution restrictions, and certify that they’re eligible to participate in the program and have no conflicts of interest.

The Fed has also indicated Main Street Lending Program borrowers should make reasonable efforts to maintain their payroll and employees for the term of the loan, in light of their capacities and resources, the economic environment, and the business need for labor. However, borrowers that have already laid off or furloughed workers because of COVID-19 are still eligible.

How to Prepare


The Fed expects small and mid-sized businesses will be able to apply for loans through eligible lenders, which includes U.S. federally insured depository institutions (i.e., banks, savings associations, or credit unions), a U.S. branch or agency of a foreign bank, a U.S. bank holding company, a U.S. savings and loan holding company, a U.S. intermediate holding company of a foreign banking organization, or a U.S. subsidiary of any of the foregoing. For the most up-to-date information, including term sheets for the three types of loans and FAQ, visit the Federal Reserve’s website.

Times are tough, and it’s important to understand all the tools available to us and our clients. The Main Street Lending Program is a way help many businesses who otherwise would have to close their doors permanently. Hopefully, this program will help keep many smaller businesses alive and thriving long after this recession is a distant memory.




Illinois CPA Society member Daniel F. Rahill, CPA, JD, LL.M., CGMA, is a managing director at Wintrust Wealth Services. He is also a former chair of the Illinois CPA Society Board of Directors.

This information may answer some questions, but is not intended to be a comprehensive analysis of the topic. In addition, such information should not be relied upon as the only source of information; professional tax and legal advice should always be obtained. Securities, insurance products, financial planning, and investment management services are offered through Wintrust Investments, LLC (Member FINRA/SIPC), founded in 1931. Trust and asset management services offered by The Chicago Trust Company, N.A. and Great Lakes Advisors, LLC, respectively. © 2020 Wintrust Wealth Management Investment products such as stocks, bonds, and mutual funds are: NOT FDIC INSURED | NOT BANK GUARANTEED | MAY LOSE VALUE | NOT A DEPOSIT | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY