Updates Made to Three Main Street Loan Facilities from the Federal Reserve

The Federal Reserve Board recently adjusted the terms of the Main Street Lending Program (MSLP) in an effort to focus their support on smaller businesses who continue to suffer due to the pandemic. The minimum loan size for the Main Street New Loan Facility (MSNLF), Main Street Priority Loan Facility (MSPLF), and Nonprofit Organization New Loans Facility (NONLF) have been reduced from $250,000 to $100,000. The fees on these three facilities have also been adjusted to encourage business owners to apply for these loans.

New Fee Amounts for the MSNLF, MSPLF, and NONLF

• Transaction Fees: If the initial principal amount of the Eligible Loan is $250,000 or greater, an Eligible Lender will pay the Special Purpose Vehicle (SPV) a transaction fee of 100 basis points of the principal amount at the time of origination. Eligible Lenders may require Eligible Borrowers to pay this fee. No fee will be imposed if the initial principal amount is less than $250,000.
• Origination Fees: If the initial principal amount of the loan is $250,000 or greater, an Eligible Borrower will pay an Eligible Lender an origination fee of up to 100 basis points of the principal amount at the time of origination. If the initial principal amount is less than $250,000, the origination fee will be up to 200 basis points of the principal amount at the time of origination.
• Servicing Fees: If the initial principal amount of the loan is $250,000 or greater, the SPV will pay Eligible Lenders 25 basis points of the principal amount of its participation in the Eligible Loan per annum. If the initial principal amount is less than $250,000 the SPV will pay 50 basis points of the principal amount of its participation in the loan per annum.

PPP Loan Considerations

Also as a part of this announcement, the Board and Department of the Treasury clarified that PPP loans of up to $2 million may be excluded by Eligible Lenders and Borrowers for purposes of determining the maximum loan size threshold under the MSLP so long as certain other requirements are met. The maximum loan size comes into play for computing “existing outstanding and undrawn available debt” when seeking loans under the MSLP. If an Eligible Borrower, and its affiliates, together received PPP loans with original principal amounts totaling less than $2 million the Eligible Borrower may exclude:

1. The “Forgiveness Amount” as reported on Line 11 of the SBA’s Form 3508, line 8 of Form 3508EZ, or on Form 3508S, as applicable, if the Eligible Borrower has applied for forgiveness of the PPP loan; or
2. The amount of the PPP loan that its principal executive officer has a reasonable, good-faith basis to believe will be forgiven in accordance with PPP requirements, after reviewing the applicable SBA Form 3508, Form 3508EX, or Form 3508S, if the Eligible Borrower has not yet applied for forgiveness of the PPP loan.

If the original principal amounts of PPP loans received by an Eligible Borrower, and its affiliates, total $2 million or more, the Eligible Borrower may not exclude any of the outstanding portion of such loans  from their “existing outstanding and undrawn available debt” calculation, unless the SBA has determined that such loans are eligible for forgiveness In cases where the PPP lender or SBA has determined that all or part of an Eligible Borrower’s PPP loan is not forgivable prior to the submission of the Main Street loan to the Main Street Portal, the unforgivable portion of the PPP loan must be included in the “existing outstanding and undrawn available debt” calculation. Eligible Lenders and Borrowers may exclude 100% of the amount of any PPP loan the SBA has determined is eligible for forgiveness from this calculation. For example, if 80% of an Eligible Borrower’s PPP loan has been deemed forgivable, 80% of the PPP loan may be excluded from the “existing outstanding and undrawn available debt” calculation while the unforgivable 20% must be included in this calculation.

All our blog posts on this topic have been updated (see below) and term sheets and forms are available at https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.

Loan Relief for Nonprofit Organizations Through the Main Street Lending Program Expansion

What Business Owners Need to Know About the Main Street Lending Program Expansion

Federal Reserve Offers Lending Program for Small and Medium-Size Businesses

For further questions, please do not hesitate to reach out to one of our corporate attorneys.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.

Posted by Attorney Hannah E. Mudd. Mudd is a member of Danna McKitrick’s transaction team. As a member of the team she advises clients on a variety of corporate and business transactions including entrepreneurial, real estate, banking, employment, and corporate formation and governance matters.

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