Scope And Eligibility Of The Main Street Lending Program Expanded

May 4, 2020

On Thursday, April 30, the Federal Reserve Board announced it is expanding the scope and eligibility for the Main Street Lending Program, a $75 billion lending program included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As part of its broad effort to support the economy, the Federal Reserve developed the Main Street Lending Program to help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic.

The Main Street Lending Program is separate from the Paycheck Protection Program, which is primarily designed for companies with fewer than 500 employees.

When the initial terms of Main Street were announced, the Federal Reserve indicated that, because the financial needs of businesses vary widely, it was seeking feedback from the public on potential refinements. In response to the public input, the Federal Reserve decided to expand the loan options available to businesses and increased the maximum size of businesses that are eligible for support under the program. 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
  • Expanding the pool of businesses eligible to borrow

Under the new loan option, lenders would retain a 15 percent 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 percent 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.

Main Street Lending Chart

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.