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Financial Services Law Insights and Observations

Fed expands Main Street Lending Program

Federal Issues Federal Reserve Agency Rule-Making & Guidance CARES Act Small Business Lending Covid-19

Federal Issues

On April 30, the Federal Reserve (Fed) announced plans to expand the Main Street Lending Program in order to “help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic.” As previously covered by a Special Alert, the Main Street Loan Program was established pursuant to the CARES Act to support small and medium-sized businesses by extending four-year loans with deferred principal and interest payments for the first year. Loan amounts started at $1 million and businesses with up to 10,000 employees or up to $2.5 billion in annual revenues could apply, with the majority of the loans then sold to a Main Street facility, while the lenders retained a 5 percent share of the loans. The Main Street Lending Program utilized a Main Street New Loan Facility (MSNLF) to provide an option for new loans, and a Main Street Expanded Loan Facility (MSELF) to provide a second option for increasing the amount of existing loans. After the Main Street Lending Program was introduced, the Fed received a large amount of feedback, which it used to make a number of modifications to the program. The modifications include:

  • Increasing the size of eligible businesses to those with up to 15,000 employees or up to $5 billion in annual revenues for 2019;
  • Adding a third loan option called priority, which increases “risk sharing by lenders for borrowers with greater leverage”;
  • Increasing the percentage share of loans that lenders retain in the priority loan option to 15 percent; and
  • Lowering the starting loan amount to $500,000 for the new loan and priority loan options.

Additional information can be found in the announcement and in the Main Street Lending Program Frequently Asked Questions here. See term sheets for the New Loan Facility here, Priority Loan Facility here, and the Expanded Loan Facility here.

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