Overview

On April 30, 2020, the Federal Reserve issued term sheets for various new lending facilities under the CARES Act intended to facilitate lending to small and medium-sized businesses by eligible lenders. This article provides a summary of the CARES Act Programs offered by the Federal Reserve.

 

CARES Act Programs

Paycheck Protection Program (PPP) - The Paycheck Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

Main Street New The Main Street New Loan Facility eligible loan is an unsecured term loan that originated after April 24, 2020. An eligible borrower must be a business that is created or organized in the U.S. or under the laws of the U.S., with significant operations in and a majority of its employees based in the U.S. 

Main Street Expanded The Main Street Expanded Loan Facility has similar loan terms to the Main Street New Loan Facility with a few key differences. The eligible loan is a term loan that was originated on or before April 24, 2020. Any collateral securing the loan, whether such collateral was pledged under the original terms of the loan or at the time of upsizing, will secure the loan participation on a pro rata basis.

Main Street Priority - The Main Street Priority Loan Facility is intended to facilitate lending to small and medium-sized Businesses by Eligible Lenders. The Priority Loan Facility, like the New Loan Facility, is for borrowers who do not have an existing loan with the Main Street Lending Program lender. However, the maximum loan size for the Priority Loan facility is the lesser of $25 million or 6 times the borrower's EBITDA, as opposed to only 4 times EBITDA for the New Loan Facility.

 

The chart below summarizes the limited information provided on these two facilities plus applicable restrictions set forth in the CARES Act.  Borrowers under the Paycheck Protection Program (PPP) may also take out Main Street loans.

Note: This information is based on our understanding of the programs at the time this was posted.  Banks should rely on their own internal guidance as these programs are subject to change and interpretation.

Program Name Paycheck Protection Program (PPP) Main Street New Main Street Expanded Main Street Priority
Eligibility Applicants must have 500 or less employees (with certain exceptions) Applicants must have no more than 15,000 employees or must have revenues of less than $5 billion Same as Main Street New Same as Main Street New
Form of Assistance New loan Loan originated after April 24, 2020 Upsized tranche of a loan that was originated on or before April 24, 2020 Same as Main Street New
Loan Term 2 years 4 years Same as Main Street New Same as Main Street New
Loan Amount
  • No minimum loan size
  • Maximum loan size = the lesser of:
    • $10 million, and
    • 2.5X average monthly payroll
  • Minimum loan size of $500,000
  • Maximum loan size = the lesser of:
    • $25 million, 30% of the Borrower's existing outstanding and committed but undrawn debt, or
    • An amount that, when added to the Borrower’s existing outstanding and committed but undrawn debt does not exceed four times the Eligible Borower's adjusted 2019 EBITDA
  • Minimum loan size of $10 million
  • Maximum loan size = the lesser of:
    • $200 million,
    • 35% of borrower’s existing outstanding and committed but undrawn debt, or
    • An amount that, when added to the Borrower’s existing outstanding and committed but undrawn debt does not exceed six times the Eligible Borrower's adjusted 2019 EBITDA
  • Minimum loan size of $500,000
  • Maximum loan size = the lesser of $25 million or,
  • An amount that when added to the Borrower's existing outstanding and undrawn debt does not exceed six times the Eligible Borrower's adjusted 2019 EBITDA
Interest Rate 1% LIBOR + 3% Same as Main Street New Same as Main Street New
Loan Fees All fees paid by SBA to lender = 5%, 3% or 1% of loan amount, depending on loan size
  • Lender pays facility fee to the government SPV = 100 bp of principal amount of the loan participation purchased by the SPV (may require Borrower to pay this fee)
  • Borrower pays origination fee to lender
    = 100 bp of principal
  • Government SPV pays an annual servicing fee to lender = 25 bp of average principal
  • An Eligible Borrower will pay an Eligible Lender a fee of 75 bp of the principal amount of the upsized tranche of the Eligible Loan at the time of upsizing. 
  • The SPV will pay an Eligible Lender 75 bp of the principal amount of its participation in the upsized tranche of the Eligible Loan per annum for loan servicing.
  • An Eligible Borrower will pay an Eligible Lender a fee of 100 bp of the principal amount of the Eligible Loan at the time of origination.
  • The SPV will pay an Eligible Lender 25 bp of the principal amount of its participation in the Eligible Loan per annum for loan servicing. 
Payment Deferral Principal and interest payments deferred 6-12 months Principal and interest payments deferred 12 months. Years 2-4: 33.33% each year Principal and interest payments deferred 12 months. Years 2-4: 15%, 15%, 70% Same as Main Street Expanded
Forgiveness Up to 100% of principal forgivable Loans are not forgivable Same as Main Street New Same as Main Street New
Employment and Payroll Requirements Direct correlation between (a) percentage of payroll and workers retained, and (b) loan forgiveness Must commit to make reasonable efforts to maintain payroll and retain workers Same as Main Street New Same as Main Street New
Compensation Limitations None
  • Compensation and severance caps on employees and officers making over $425,000 in 2019
  • Compensation and severance caps on officers making over $3 million in 2019
Same as Main Street New Same as Main Street New
Stock Repurchase Limitations None  Other than due to an existing contractual obligation, may not purchase exchange-listed securities of the borrower or a parent company until 1 year after the loan is repaid Same as Main Street New Same as Main Street New
Capital Distribution Limitations None  May not pay dividends or make distributions until 1 year after the loan is repaid Same as Main Street New Same as Main Street New