Understanding The Main Street Lending Program

By Sandra Feldman, Wolters Kluwer CT Corporation

The Federal Reserve’s Main Street Lending Program (MSLP) has been launched. The MSLP provides loans to small to midsized businesses that were in good financial condition before COVID-19 but that are now seeking financial support because of the pandemic.

What Kind Of Loans Are Offered By The MSLP?

The MSLP offers three different kinds of loans: “new” loans, “priority” loans, and “expanded” loans. A business can only apply for one of the three. (For a comparison of the three loans see our article "What you should know about the Main Street Lending Program"). To be eligible, a business must, among other things, have no more than 15,000 employees or have 2019 revenue of less than $5 billion. It must have been created or organized in the United States and have significant operations and a majority of its employees based in the United States.

What Are The Key Terms Of The Loans?

The loans range in size from $250,000 to $300 million, depending upon which of the three loans is obtained. Each loan has a term of 5 years. The interest rate is LIBOR plus 300 basis points. Unlike the loans under the Payroll Protection Program (PPP), MSLP loans cannot be forgiven. The loan must be repaid. Principal payments are deferred for 2 years. Interest payments are deferred for 1 year. Prepayment is permitted.

What Incentives Are There For A Lender To Grant An MSLP Loan?

As part of the program, the Federal Reserve Bank of Boston established a special purpose vehicle (SPV). An eligible lender that grants an MSLP loan can then sell the loan to the SPV. The SPV is authorized to buy up to $600 billion worth of MSLP loans. The SPV will purchase 95 percent of each loan. The lender retains the other 5 percent of the risk.

What Can An MSLP Loan Be Used For?

Unlike the PPP loans, which must be used mainly for payroll, the MSLP loans are not restricted. However, the borrower must agree to certain conditions that can affect how it uses the proceeds. For example, the borrower, in most cases, cannot use the loan proceeds to pay off other loan balances. Also, the borrower must agree to make a good-faith effort to maintain payroll and retain employees and must agree to limit the compensation paid to certain high salaried executives and employees. It must also agree not to pay dividends and publicly traded borrowers must agree not to engage in stock buybacks.

How Do Businesses Apply For An MSLP Loan?

Businesses apply for an MSLP loan through an eligible lender. An interested business should contact its lender to see if it is participating in the program or contact another eligible lender.

The lender will determine if the business is an eligible borrower. However, meeting the MSLP’s eligibility requirements does not guarantee the business will be granted a loan. The lender is underwriting the loan and is expected to determine, based on its own criteria, whether to lend money to the business.

What Documents Are Needed To Apply For An MSLP Loan?

An eligible business should contact its lender to find out what documents the lender requires to apply for an MSLP loan. Typically, a lender will ask for business entity documents to help determine the business’ eligibility, and financial records to determine its creditworthiness.

Although it can vary depending upon the lender, the following documents may be required:

• Certified copy of the formation document (e.g., articles of incorporation, articles of organization, certificate of limited partnership)
• Certificate of existence from the state of formation
• Internal governing documents (e.g., bylaws, operating agreement, partnership agreement)
• List of subsidiaries and affiliates
• Business licenses
• Income tax returns for the last 2 or 3 years
• Financial records (e.g., balance sheets, cash flow statements, profit and loss statements)
• Payroll records
• Proof of identity and address of the person signing the application

How Can CT Help?

Preparing the documentation needed for an MSLP loan can be time-consuming and stressful. CT can help by obtaining certified copies of formation documents and certificates of existence. And if a business has a problem obtaining a certificate of existence because it is not in good standing, CT can help it file the documents required to return it to good standing or to reinstate it if it has been administratively dissolved.

To learn more about how CT can help a business obtain the necessary business entity documents when it is applying for an MSLP, PPP, or another business loan, contact a CT representative

For more information on the MSLP program see our article.

New Main Street Lending Program Provides COVID-19 Related Financial Assistance for Businesses

About The Author

Sandra (Sandy) Feldman has been the Publications Attorney for CT Corporation since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.