Main Street Loan Program Option

The Main Street Program is a Federal program to help Small to Mid-sized businesses as a third lending option, mainly targeted at those who cannot obtain other relief.  It is in most respects just a Federally insured loan program that will be offered through banks and credit unions.  Based on the likely demand and traditionally stringent underwriting requirements, the process may be long and expensive.  They are also large in size and are likely to over-leverage most small businesses using 4 times EBITDA.  As a result of the large amount and it being placed in first position, existing borrowers may have a difficult time getting funds without first repaying their other loans.  Other traditional financing vehicles would seem to be more favorable than this program both in cost and time.  *The program has not been opened by any lenders as of yet and it is unclear when that will be.

PROS:

  • principal and interest payments deferred for one year (unpaid interest will be capitalized)
  • prepayment permitted without penalty

 

CONS:

  • Are underwritten using a federally insured bank or Credit union using traditional credit terms including but not limited to meeting affiliation rule tests by SBA and need based tests by the lender
  • 4-year maturity
  • Not forgivable
  • Loan Origination fee up to $5000
  • Transaction Fee minimum of $5000
  • adjustable rate of LIBOR (1 or 3 month) + 300 basis points; Roughly 3.5%
  • principal amortization of one-third at the end of the second year, one-third at the end of the third year, and one-third at maturity at the end of the fourth year;
  • Minimum loan size of $500,000;
  • maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the Eligible Borrower’s existing outstanding and undrawn available debt, does not exceed four times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”);  -This can make a borrower ineligible based on minimum loan amount
  • is not, at the time of origination or at any time during the term of the Eligible Loan, contractually subordinated in terms of priority to any of the Eligible Borrower’s other loans or debt instruments; and
  • A business cannot use the loan to pay dividends or make other capital distributions on common stock, or repurchase an equity security listed on a national securities exchange while the direct loan is outstanding, for the term of the loan and for a period ending one year after the loan is repaid.
  • The business will honor any collective bargaining agreements for the term of the loan and for two years after completing repayment; and
  • The business will remain neutral in union organizing efforts.