Many businesses and their employees were helped financially through the government’s recent Paycheck Protection Program (PPP). The program was designed to help smaller businesses and keep employees on the payroll rather than going on unemployment. A new program from the government called the Main Street Lending Program is almost ready to disburse funds to larger businesses that are having financial difficulty.
The Fed Chairman Says Program Is Almost Ready
The Chairman of the Federal Reserve – Jerome Powell – revealed that the program is almost ready to disperse the funds in the Main Street Lending Program. He said that it could be ready in just a few days. The government program has been given $600 billion to make loans available for businesses that are too big for the PPP.
The goal of the program is to help businesses that had been financially stable until the end of 2019 but were hurt by the spread of coronavirus. This especially includes businesses such as restaurants, hotels, and other businesses that were not considered essential and had to shut down.
The Available Loans
This Main Street Lending Program has specific size requirements of the loans that it will make available. The loans will range in size from $500,000 up to $100 million. Like the PPP, the loans will be made available through local banks. Businesses that have received funds from the PPP are also eligible for Main Street loans.
As with the PPP, the loans are made available through the local banks. Banks will have some risk in the loan, but the Fed will pick up either 85 or 95% of it.
The Types of Loan Programs
The Main Street Lending Program is not a single program. It consists of three programs: the MSNLF, MSPLF, and MSELF. The terms of each loan type vary and one type may be better than another – depending on your business and its needs. The program offers secured and unsecured loan options.
Qualifications for the Loan
Any business that is going to apply will need to meet certain qualifications. They can apply if they have up to 15,000 employees and have annual revenue of up to $5 billion. The business will also have to meet the requirements to be able to get a loan from the SBA.
Any business applying will also need to have started before March 13, 2020. Nearly all of the employees need to be in the U.S., and they can be full-time, part-time, and seasonal employees. Independent contractors and volunteers cannot be added to the count.
Businesses that have received financial help through other government stimulus programs, such as the CARES Act, cannot apply. This includes airlines and businesses that are essential for national security.
Differences from the PPP
Main Street Loans differ from the PPP in a couple of ways. Since the minimum loan size is $500,000, it will rule out most small businesses.
The loan is not a grant and it is not forgivable. Businesses need to pay back the money – with interest – within 4 years. The first year allows deferred payments, and each loan type has different payback rates. Interest is set at LIBOR plus 3%.
When applying for the loan, the borrower will have to certify that it is within reason to assume that it can repay the loan – at least for the next 90 days. The borrower should not be planning on declaring bankruptcy within that same time.