After quite a few revisions and much discussion, the Main Street Lending Program (MSLP) was officially launched by the Federal Reserve on June 15. Seen as an alternative to the PPP loan program, which is administered by the SBA, the MSLP was originally created to meet the needs of midsize to larger businesses. But now it is considered an option for some smaller businesses as well since last week the minimum loan size was reduced from $500k to $250k and the repayment term was lengthened from four to five years.
According to Federal Reserve chairman, Jerome Powell, “Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery. I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period.”
Businesses interested in the MSLP have to meet one of the following criteria (but aren’t required to meet both) to apply:
- Have fewer than 15,000 employees
- 2019 revenues must be $5 billion or less
Unlike PPP, MSLP lenders must apply normal underwriting standards to evaluate the potential borrower’s creditworthiness, and these loans are not forgivable, two drastic differences between the two programs.
Other MSLP parameters include:
- Businesses that qualify can apply for these loans between now and September 30, 2020.
- The Fed will purchase up to $600 billion in eligible loans. If that money runs out before the deadline of September 30, 2020, the program will quit lending money unless more funds are allocated.
- To apply, a business must have been established in the U.S. before March 13, 2020.
- Loans have a five-year maturity, deferral of principal payments for two years, and deferral of interest payments for one year. After the second year, the loan will be amortized over the remaining term of the loan with 15% of principal due at the end of year 3, another 15% due at the end of year 4, and a 70% balloon payment of the remaining principal due at the end of year 5 when the loan matures.
- The interest rate on these loans is LIBOR (1 month or 3 month) plus 3%.
Keep in mind that you can still apply for a PPP loan until June 30, which is potentially forgivable and has a lower interest rate if it does have to be repaid. Making a determination about which program is best for your individual business can be confusing, but we are here to help you review your options and choose the best program, or combination of programs. Call or email us today to discuss your specific situation; we are happy to help!