May 1, 2020
According to the press release issued by the Federal Reserve Bank, the changes include:
creating a third loan option with increased risk sharing by lenders for borrowers with greater leverage;
lowering the minimum loan size for certain loans to $500,000; and expanding the pool of businesses eligible to borrow.
Under the new loan option, lenders would retain a 15% share on loans that when added to existing debt do not exceed six times a borrower's income, adjusted for interest payments, taxes, and depreciation and other appropriate adjustments. This compares to the existing loan options where lenders retain a 5% share on loans, but have different features. Under all of the loan options, lenders will be able to apply their industry-specific expertise and underwriting standards to best measure a borrower's income. In total, three loan options—termed new, priority, and expanded—will be available for businesses. The chart below summarizes the different loan options.
Additionally, businesses with up to 15,000 employees or up to $5 billion in annual revenue are now eligible, compared to the initial program terms, which were for companies with up to 10,000 employees and $2.5 billion in revenue. The minimum loan size for two of the options was also lowered to $500,000 from $1 million. With the changes, the program will now offer more options to a wider set of eligible small and medium-size businesses.
The Main Street Lending Program was established under Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary. The Treasury will provide $75 billion for the program using funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. A start date for the program will be announced soon.
