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FED Takes Action on $2.3 Trillion in Loan Support

The CARES Act signed into law on March 27th promised more in the form of a Main Street Lending Program and the Federal Reserve was tasked to put that program into place. Today the Fed took action in regards to this program and in their press release this morning stated their actions were “to provide up to $2.3 trillion in loans to support the economy. This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.” Click here to read the Fed’s full press release.

Even with the funding under the CARES Act, there has been a lot of concern around the ability for banks to provide Payroll Protection Program (PPP) funds due to other banking or capital rules and coordination with the SBA. Businesses that were not able to utilize PPP due to their employee size were waiting on another loan program. The Main Street Program is now an option. We are still awaiting additional details on this specific program but the summary issued today is an enormous opportunity for businesses to access liquidity.

We do know that businesses will want to work with their banks and advisors to understand if they should apply for this program. Based on the Fed announcement today, this appears to be a powerful program to help our economy. It should be noted that it appears from the Fed press release that a company can avail itself of these funds even if they have already secured a PPP loan. These loans are contingent on 2019 operating results in terms of positive EBITDA (earnings before interest, taxes, depreciation, and amortization). Below are some additional highlights:

  • The loans would be geared toward businesses with up to 10,000 employees and less than $2.5 billion in revenues for 2019. Principal and interest payments will be deferred for a year.
  • The Main Street Program loans would be a minimum of $1 million and a maximum of either $25 million or an amount that “when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization,” whichever is less.
  • Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have taken advantage of the PPP may also take out Main Street loans.
  • Terms would see an interest rate equal to the Fed’s Secure Overnight Financing Rate, currently 0.01%, plus 250-400 basis points with a four-year maturity.
  • A special-purpose vehicle that the Fed created jointly with the Treasury Department will purchase 95% of the loan while the financing institution would hold the other 5%.
  • The Fed will purchase up to $600 billion in loans.
  • The Fed also announced a move to “bolster the effectiveness” of the Payroll Protection Program (PPP) by providing term financing to institutions lending through the PPP. The program will also provide relief for state and municipal governments.

Berntson Porter is your trusted advisor. We will continue to monitor these updates as they become available. For the latest resources on COVID-19, please visit our website.


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