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The Federal Reserve’s Main Street Lending Program (MSLP) was first announced on March 27, 2020, as part of the $2.3 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. Its $600 billion in lending is designed to provide access to liquidity for small and mid-sized businesses that were in good financial standing before the COVID-19 crisis.
Note that recipients of funding from the Paycheck Protection Program (PPP) are eligible to receive MSLP funds. Whether you’ve received funding through the PPP, or are simply looking for alternative funding for a mid-sized business, this option may be of interest.
How does the Main Street Lending Program work?
The Program will utilize $75 billion made available from the US Department of the Treasury, using funds appropriated for the Exchange Stabilization Fund of the CARES Act. When leveraged by the Federal Reserve, this capital provides up to $600 billion in liquidity to participating lenders.
Commercial banks will lend to companies and then sell all but a small portion of each loan to the Federal Reserve. The Treasury Department will then cover the Fed’s losses as needed if companies cannot repay.
There are three different types of MSLP loan facilities: All three use the same eligible lender and eligible borrower criteria and have many of the same features. The loan types differ in how they handle the business’s existing outstanding debt including the level of pre-crisis debt a business may have had on the books.
Let’s break it down:
| Main Street New Loans (MSNLF) | Main Street Priority Loans (MSPLF) | Main Street Expanded Loans (MSELF) | |
| Term | 5 years | 5 years | 5 years |
| Minimum loan size | $250,000 | $250,000 | $10 million |
| Maximum loan size | The lesser of $35M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA | The lesser of $50M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA | The lesser of $300M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA |
| Risk retention | 5% | 5% | 5% |
| Principal repayment | Principal deferred for two years, years 3-5: 15%, 15%, 70% | Principal deferred for two years, years 3-5: 15%, 15%, 70% | Principal deferred for two years, years 3-5: 15%, 15%, 70% |
| Interest payments | Deferred for one year | Deferred for one year | Deferred for one year |
| Rate | LIBOR + 3% | LIBOR + 3% | LIBOR + 3% |
Who can apply for the MSLP?
The Main Street Lending Program is designed to cover small to mid-sized businesses that were established prior to March 13, 2020 with between 500 and 15,000 employees OR that have up to $2.5 billion in revenue. The business must have been created or organized in the US (or under the laws of the US) with significant operations in and a majority of its employees based in the US.
The program will also cover nonprofit hospitals, universities, and social service organizations with as few as 10 employees — and there are specific requirements for those groups including being in continuous operation since January 2015 and having an endowment of less than $3 billion.
Businesses can qualify for MSLP funding even if they’ve applied for the PPP. To find out any additional requirements or restrictions, check out the Federal Reserve’s website.
Which banks can make Main Street loans?
Eligible banks (rather than the Federal Reserve or Treasury) will make the loans. Lending functions similarly to the PPP, where financial institutions, rather than the SBA, are facilitating the loans. Eligible lenders are US-insured depository institutions, US bank holding companies, and US savings and loan holding companies.
How do Main Street Lending Program loans work?
Main Street loans are structured like more traditional loans, though interest rates are low and payments are deferred for a full year. Main Street loans will be issued through the banks, who will, in turn, sell 95% of the loan back to a special purpose vehicle created by the Fed.
Banks will retain a five percent share of the loan, selling the remaining 95% to the Main Street facility, which will purchase up to $600 billion of loans. Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.
Main Street Lending Program vs. PPP Loans
Unlike loans made under the PPP, Main Street loans are not forgivable and will need to be repaid in full. To understand the difference, read more about PPP loan forgiveness.
When can my business apply for a Main Street loan?
The Federal Reserve initially announced plans for how the Main Street Lending Program would work on April 9 and launched the program on July 6, 2020. The Federal Reserve Bank of Boston began publishing a list of lenders and accepting new business customers under the program on July 8.
The program is currently scheduled to end on September 30, 2020.
For more information about how your business can navigate payroll, HR, and benefits through COVID-19, please visit our Resource Center.
This article is for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors for formal consultation.
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Erin Ellison is the former Content Marketing Manager for OnPay. She has more than 15 years of writing experience, is a former small business owner, and has managed payroll, scheduling, and HR for more than 75 employees. She lives and works in Atlanta.