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Mid-Sized Businesses, The CARES Act Care(s) About You!
The information on this post is current as of 4/29/2020. After being signed into law on March 27, 2020, much of the focus surrounding the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) has centered around the Paycheck Protection Program and the Economic Injury Disaster Loan and Emergency Grant. Both programs are designed to provide relief to small businesses (primarily those with under 500 employees).
But what about mid-sized businesses? Or businesses that need vital financial support, but do not meet the definition of a “small business concern” due to affiliation rules?
Good news: the CARES Act does “care” and now encourages the Federal Reserve and Treasury to implement additional lending programs.
CARES Act Provides Assistance For Mid-Sized Businesses
Section 4003(c)(3)(D)(ii) of the CARES Act provides that the “Federal Reserve [may] establish a Main Street Lending Program or other similar program or facility that supports lending to small and mid-sized businesses.” Section 4003(c)(3)(D)(i) directs the Treasury to assist in implementing the program.
Federal Reserve and Treasury Announce Lending Program for Mid-Sized Businesses
On April 9, 2020, the Federal Reserve, published term sheets for a Main Street Lending Program for small and/or mid-size businesses.
This program was announced as one of four CARES Act programs, including:
- (1) providing funds (financial liquidity) to the lenders supplying 7(a) Paycheck Protection Program Loans;
- (2) expanding certain credit facilities for highly rated (i.e., investment grade) borrowers; and
- (3) a municipal credit facility for states and cities).
There are actually two separate loan programs under the Main Street Lending Program—the Main Street Lending Program and the Main Street Expanded Lending Program. Comments from lenders and borrowers concerning the two programs were due to the Federal Reserve on April 16, and we await further guidance regarding the implementation, application process, etc.
This is what we know thus far:
The Federal Reserve will establish an entity to purchase 95% of each Main Street Loan that a bank and/or savings & loan company (the “Lenders”) makes to a small and/or mid-size business. The programs still rely on the Lenders to make the actual loans, either as a new loan (“Main Street Lending Program”) or as an increase to an already existing loan (“Main Street Expanded Lending Program”). However, lenders will be encouraged to extend the loans because the Federal Reserve will assume 95% of the default risk.
The proposed terms of the programs are similar (aside from the loan amount and the collateral required) and are outlined below:
Main Street Lending Programs
| MAIN STREET LENDING PROGRAM | MAIN STREET EXPANDED LENDING PROGRAM | |
|---|---|---|
| Eligibility Requirements: | A lender cannot extend credit to the same company under both the Main Street Lending Program and the Main Street Expanded Lending Program. However, small businesses that applied for and/or received a 7(a) Paycheck Protection Program loan are also eligible for either of the Main Street Lending Programs.
So long as the business has:
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| Terms of The Loan: |
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| Loan Amount: | From $1 million up to the lesser of (i) $25 million or (ii) an amount that, when added to the business’ outstanding and committed, but undrawn debt, does not exceed four times the business’ EBITDA (“earnings before interest, taxes, depreciation, and amortization). | From $1 million up to the lesser of (i) $150 million or (ii) 30% of the borrower’s existing outstanding and committed, but undrawn bank debt or (iii) an amount that, when added to the business’ outstanding and committed, but undrawn debt, does not exceed six times the business’ EBITDA (“earnings before interest, taxes, depreciation, and amortization). |
| Certifications: | In addition to certifications required by applicable statutes and regulations, the business must attest that it meets the qualification requirements to participate in the Main Street Lending Program and that it will comply with the following requirements:
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| Application Process: | Business may apply through September 30, 2020, with additional details in future guidance. | |
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