Federal Reserve’s Main Street Lending Will Be More Attractive
The Federal Reserve announced their new “sweeter” loan terms for Main Street Lending on June 8. This program will support up to $600 billion in new loans. A business that applies must show that it was in “good order” before the Covid-19 pandemic. Even if business owners received PPP loans, they are able to apply for these programs. The Fed will still support 3 lending facilities (one for new borrowers, a 2nd for borrowers that may have existing debt but lower fiscal needs, and the 3rd for borrowers with an existing loan/credit line with outsize fiscal needs). The Federal Reserve chair, Jerome H. Powell, wants to support small and midsize businesses as they reopen and rehire workers to aid America’s broad-based economic recovery.
The following are some of the new important changes to the Main Street Lending Program.
*Increased maximum loan size: Banks can now lend up to $35M or $50M in new loans. Up to $300M can be refinanced from an existing loan if a business’s total debt is below the threshold established from 2019 earnings. A business needs a minimum EBITDA of just under $42,000 from 2019 and no debt.
*Lowered minimum loan amounts: Minimum loan is now $250,000 (down from $500K) for 2 programs. The 3rd program has loans that begin at $10M.
*Repayment period is extended to 5 years (from 4 years). There will be 1 year with no interest and new rules will allow up to 2 years of deferred payments. Repayment terms will be standard across all 3 facilities.
*The Fed’s participation is raised to 95% for all loans and banks will only have 5% of a loan’s value on their books.
Main Street Loans also restrict executive compensation and businesses need to make every effort to retain their employees during the term of the loan. The Main Street Lending Program is funded with $75 billion in aid from the CARES Act.
The new loan terms will allow more creditworthy small and midsize businesses to receive funds to survive the pandemic challenges. This is great news for America’s businesses and will allow them to remain the backbone of America.
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