Federal Reserve Modifies Terms of Main Street Lending Program (MSLP) to Increase Loan Availability for Smaller Businesses

On October 30, 2020, the Federal Reserve (the Fed) announced that it had adjusted the terms of its Main Street Lending Program (MSLP) in two ways in an effort to better target financial support to smaller businesses.  First, the Fed reduced the minimum loan size for three MSLP facilities available to for-profit and not-for-profit borrowers from $250,000 to $100,000.  The fee structure of these facilities was also modified to encourage the provision of the smaller loans by eligible lenders.

Second, the Fed also issued a new frequently asked question clarifying that Paycheck Protection Program (PPP) borrowers that, together with their affiliates, received less than $2 million in PPP loans may exclude up to the principal amount of these PPP loans from their “existing outstanding and undrawn available debt” for purposes of determining the maximum loan size under the MSLP provided certain requirements are met:

1. If the borrower has applied for forgiveness of its PPP loan, the “Forgiveness Amount” as reported by the borrower on Line 11 of the Small Business Administration’s (SBA) Form 3508, on Line 8 of Form 3508EZ, or on Form 3508S, as applicable, may be excluded, except to the extent the borrower’s PPP lender or SBA has determined that such amount is ineligible for forgiveness.
2. If the borrower has not yet applied for forgiveness of its PPP loan, the amount of its PPP loan that its principal executive officer has a reasonable, good-faith basis to believe will be forgiven in accordance with applicable PPP requirements, after review of SBA’s Form 3508, Form 3508EZ, or Form 3508S, as applicable, including the relevant instructions, may be excluded.

However, a potential MSLP borrower that, together with its affiliates, received PPP loans with original principal amounts totaling $2 million or more, may not exclude any of its outstanding PPP debt from its MSLP calculations, except to the extent that the SBA has actually already determined that such PPP debt is eligible for forgiveness.

Unlike the PPP, which allows for potential full loan forgiveness, loans under the MSLP must be repaid. However, the MSLP does generally offer borrower-favorable terms, including deferred principal and interest payments.  To date, the MSLP has made approximately 400 loans totaling roughly $3.7 billion. The program was established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the CARES Act.