With the ongoing economic fallout caused by the COVID-19 pandemic, there continues to be a great need for working capital and liquidity for U.S. businesses. The Federal Reserve has created a new loan program, called the Main Street New Loan Facility (MSNLF), to supplement the SBA’s existing Economic Injury Disaster Loan (EIDL) program and the Paycheck Protection Program (PPP).
The size limit for businesses to be eligible under the MSNLF is a whopping $2.5 billion in revenue and 10,000 employees. The minimum loan size is $1 million, with a maximum loan amount equal to the lesser of $25 million or, an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the company’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). The business applicant must be a business that is created or organized in the United States or under the laws of the United States with significant operations in, and a majority of, its employees based in the United States.
Given the size of businesses that are eligible and the minimum and maximum borrowings under this program, there is some irony that the program is titled “Main Street”. I don’t see many local businesses on Main Street in my town having revenue or headcount anywhere near the limits set forth under this program, nor do I know of many who would want to borrow $1 million. But given that so many mid-size businesses were excluded from the loan relief provided under the EIDL and PPP, this certainly serves the needs of a broader set of companies. This program will fund up to $600 billion, which is almost double the current funding limits established under the EIDL ($10 billion) and PPP ($349 billion), combined.
MSNLF loans are not eligible for forgiveness. These loans are expected to have 4-year maturities, with payments deferred for one year, and no prepayment penalties. And like the EIDL and PPP, there are certain attestations that both the lender and borrower must make under this program with respect to need and the intended use of the funds. And of course, there are also a whole host of nuances with respect to how the government and lenders are going to jointly participate in these programs, but I won’t bore you with those details (although if you want to, you can read all of the nitty gritty details).
It remains to be seen if the government will step up with additional funding for the EIDL and PPP, if, and when the existing funds run dry. It would seem that both of these programs are the preferred relief programs for many small businesses struggling to manage through the economic crisis many are facing. While the initial launch of the EIDL and PPP has gotten off to a rocky start, we do expect that the lenders and SBA will start to catch up on the commitment that was made on their behalf when the CARES Act was passed, and that small businesses will start to see funds flowing and experience some relief in the coming weeks. We will continue to update you, as always, as things progress.
by John Geraci, CPA, MST