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Fed Expands Main Street Lending Program

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Federal Reserve building in Washington. (Photo: AP) (Photo: AP)

The Federal Reserve is once again expanding one of its new lending programs designed to blunt the economic impact of the COVID-19 pandemic.

Just days after it announced the expansion of its municipal liquidity facility (MLF) to include more cities and counties, it announced the expansion of its Main Street Lending Program focused on providing financial support for small and medium-size businesses.

(Related: How the Fed’s Expanded Support Can Help the Muni Market)

The expansion means the program, which has yet to launch, can serve a wider variety of businesses, both bigger and smaller than originally proposed, as well as businesses with more leverage.

Businesses with a maximum 15,000 employees and $5 billion in revenue will now qualify for the program, up from 10,000 employees and $2.5 billion in revenue initially announced.

Minimum loan sizes, however, will be $500,000, down from the original $1 million, and a third option for loans will be available for borrowers with more leverage.

Under the new option, companies can borrow up to $25 million if their total debt doesn’t exceed six times their income after adjustments for interest payments, taxes, depreciation and other items so long as their lender retains a 15% share of the loan. 

The original plan restricted borrowers to a maximum $25 million if their debt didn’t top four times EBITDA and it required lenders to retain just 5% of the loan.

“With the changes, the program will now offer more options to a wider set of eligible small and medium-size businesses,” according to the Fed. 

Both options have four-year terms and charge 3% over LIBOR as does a third loan option under the plan.

That option provides loans ranging from $10 million to $200 million for companies whose total debt, including the loan, doesn’t exceed six times 2019 EBITDA or 35% of outstanding and undrawn available debt.

The entire Main Street Lending Program is funded with $75 billion from the U.S. Treasury provided by the CARES Act.

At his press conference Wednesday, Fed Chairman Jerome Powell said the central bank was “close to” issuing a new term sheet for the Main Street Lending Program “which will then become operative fairly quickly.”  

“We’re very much in touch with the urgency of that need,” said Powell, who added that the Fed will keep looking “to add products” and “different kinds of borrowers” to the program.

Powell stressed that unlike the Payback Protection Program (PPP), which was heavily oversubscribed and ran out of funds initially, the Main Street Lending Program “won’t run out of money. It’s not a limited pot so, there won’t be this incentive to try to get there first and that sort of thing.” 

The PPP converted loans to grants if businesses retained workers. The Main Street Lending Program has no such option.

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