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|
|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
|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|
||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|