Recently, the Federal Reserve announced an expansion of the Main Street Lending Program (MSLP) and an extension of the program through Dec. 31, 2020. The Main Street Lending Program was originally established under the CARES Act in order to support lending to small and medium-sized businesses and nonprofit organizations in response to the coronavirus pandemic. Since the launch of the MSLP, the Federal Reserve has continued to expand the program to provide more support to businesses and nonprofit organizations.
Small Business Expansion
In June, the Federal Reserve Board announced a number of changes to the MSLP aimed at facilitating additional lending to small businesses. Specifically, the Federal Reserve changed the criteria as follows:
- Minimum loan amount lowered to $250,000
- Maximum loan size increased ($35M for new loans, $50M for priority loans, and $300M for expanded loans)
- Loan term options increased to five years
- Extended repayment period by delaying principal payments for two years (previously one year)
- Extended payment term obligation (Years 3 – 4, 15%; Year 5, 70%)
In addition, the Federal Reserve expects to continue to purchase 95% of each eligible loan versus the tiered purchase plan previously announced.
Nonprofit Organization Expansion
Announced in late July, the Federal Reserve Board has made several changes to the MSLP in order to provide greater access to credit for nonprofit organizations affected by the coronavirus pandemic. Nonprofit organizations including hospitals and social service organizations have been especially impacted by the pandemic. The expanded program is available to 501(c)(3) and 501(c)(19) nonprofit organizations. Based upon feedback solicited by the general public, the Federal Reserve updated the MSLP criteria to include the following:
- Loan terms increased to five years
- Minimum loan amount increased to $250,000 (nonprofit new loans) and $10M (nonprofit expanded loans)
- Minimum employee total decreased to 10 employees (previously 50 minimum)
- Decreased total non-donation revenue to 60% or greater (down from 70%)
- 2019 operating margin requirement decreased to 2% (previously 5%)
- Total days of cash on hand decreased to 60 days (previously 90 days)
- Decreased debt repayment capacity to 55% (down from 65%)
In addition, the program for nonprofit organizations continues to have principal repayment deferred for the first two years. Borrowers are only required to make repayment of 15% during years three and four with a balloon payment of 70% due the fifth year. In addition, interest will incur at a rate of LIBOR plus 3%, although interest is deferred for the first year of the loan.
The Main Street Lending Program continues to be a valuable tool for many small businesses and nonprofit organizations. KJK remains on top of this unique program and assisting clients to navigate through the MSLP. If you have any questions or need further information, please feel free to contact our Main Street Lending Program Team: Anne Corrigan at email@example.com or 216.736.7227; Stephanie Mercado firstname.lastname@example.org or 216.736.7272; or Demetrius Robinson at email@example.com or 614.378.8067.