November 9, 2020

Main Street Lending Program Expanded to Small Businesses

The challenges created by the COVID-19 pandemic have been especially difficult for Atlanta mid-sized businesses. The almost overnight changes from “business as usual” to stay at home orders and forced closures meant a significant drop in revenue. The businesses hit hardest include retail, transportation and warehousing, employment services, tourism, and entertainment/recreation. According to the Federal Reserve Bank of Atlanta, these industries account for 44% of small business employment in Georgia. To survive the abrupt changes, many turned to existing banking relationships or investigated the Paycheck Protection Program (PPP), but discovered they were established to serve smaller companies. That is why many turned to the Main Street Lending program to obtain the needed working capital to bridge the gap. Unfortunately, the small loan amount was $250,000 which was greater than some needed or could qualify for. The good news is the Federal Reserve recently changed the Main Street Lending Program to allow more businesses to apply. The minimum loan amount was reduced to $100,000 and transaction fees waived for loans under $250,000. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Loan Program Eligibility

There are various program eligibility criteria that must be met to apply for a loan.

• An eligible applicant must be an organized for-profit business that includes a partnership, limited liability company, corporation, association, trust, cooperative, a joint venture with more than 49% participation by a foreign business entity, or a tribal business concern.
• The business must have been established prior to March 13, 2020.
• The business must either have 15,000 or fewer employees or, had 2019 annual revenues of $5B or less.
• The business must have been created or organized in the US, or under US laws, with significant operations and most employees based in the US.
• The business may not have received any specific support related to the Coronavirus Economic Stabilization Act of 2020.

Loan Details

Much like other federally funded loan programs, there are several loan details including term, deferment, and payment structures that need to be considered. These include:

• The loan maturity timeline is 5 years,
• Principal payments can be deferred for two years and interest payments deferred for one year.
• The interest rate is an adjustable-rate of LIBOR (1 or 3 months) and includes 300 basis points.
• Principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at the maturity date.
• The minimum loan size amount is $100,000.
• The maximum loan size is $35M or an amount that when added to the borrower’s outstanding debt, does not exceed four times the adjusted 2019 earnings before EBITDA.
• Loan prepayment is permitted without penalties.

Borrower Certifications

Much like other federal loan programs, there are several certifications that must be made in order to receive a loan. These include:

• The borrower must certify they will not repay the principal balance, or interest, on any debt until the upsize portion of the eligible loan is repaid in full. The only exception would be when the debt or interest payment is mandatory and due.
• The borrower agrees not to seek to cancel or reduce any committed lines of credit with the lender, or any other lender.
• Must certify there is a reasonable basis to believe that, as of the date of the loan, it has the ability to meet financial obligations for, at least, the next 90 days and does not expect to file bankruptcy.
• Agree to follow compensation, stock repurchase, and capital distribution requirements that apply to direct loan programs as outlined in the CARES Act. The only exception is S-corporations, or other pass-through entities, to the extent needed to cover the owner’s tax obligations.
• Meet all criteria and is eligible to participate in light of the conflict of interest provisions in the CARES Act.

It is important to note that borrowers are required to make reasonable efforts to maintain payroll and retain employees during the time the loan is outstanding. However, no specific guidelines have been provided by the Federal Reserve.

Contact Us

The changes to the Main Street Lending Program open the door to wider participation by Atlanta businesses. The new loan minimum means businesses that need working capital to position for the recovery now have an additional option to consider. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.