By Ronald S. Nixon

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 additional information, please feel free to reach out to Kemp Klein Law Firm.