Kemp Klein

Main Street Lending Program: Another Funding Option for Small to Medium-Sized Businesses

For small businesses unable to secure the limited funds made available by the CARES Act through the SBA-administered Paycheck Protection Program (PPP) or medium-size businesses ineligible for a PPP loan, the Main Street Lending Program offered by the Department of Treasury is another source of funding created by the CARES Act to help whether the COVID-19 storm. Eligible borrowers are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues that are organized and have most of their employees in the United States. The Main Street loans are not forgivable; they must be paid in full and are subject to stringent eligibility criteria, but the option is available should a business qualify and need it.

The following terms apply to the Main Street loans:
1) 4-year maturity with no prepayment penalty;
2) amortization of principal and interest deferred for 1 year;
3) a variable interest rate of 2.5 to 4% over the Standard Overnight Financing Rate (currently .01%); and
4) the amount borrowed must be between $1 million and an amount added to the borrower’s existing outstanding debt that does not exceed 4 times the borrower’s 2019 earnings before EBITDA, up to a maximum of $25 million.

In addition to meeting the eligibility criteria, a borrower must attest to the following: that the proceeds will not be used to refinance or repay existing loans; that the borrower will not repay existing loans (other than mandatory principal payments) before the Main Street loans are paid in full; that it will not reduce or cancel outstanding lines of credit; that the borrower requires financing because of exigent circumstances created  by COVID-19 and that it make reasonable efforts to maintain its payroll and retain employees during the term of the loan; that it will follow the CARES Act’s restrictions on compensation, stock repurchase, and capital distribution; and that it meets the eligibility criteria established for the loan, including the EBITDA leverage conditions.

For further information regarding these matters, please contact Mr. Nixon at 248 619 2585 or via email.