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CARES Act: Overview of Mainstreet Lending Program

Posted by : , and on : April 15, 2020 | 8:00 am

In the immediate future, the Federal Reserve System (the “Fed”) is expected to open another source of liquidity for small to mid-sized businesses. Referred to as the Main Street Lending Program, the source actually consists of two separate lending facilities, themselves being a part of several new and revived facilities created under the Fed’s 13(3) authority. To put this into context, in times of exigent circumstances, Section 13(3) of the Federal Reserve Act allows the Fed to go beyond its traditional role as a lender of last resort to banks; it allows the Fed to lend to nonbanking businesses. These are extraordinary measures. Section 13(3) was invoked briefly following the Great Depression in 1932 through 1936 and was not used again until the financial crisis of 2008.


The Main Street Lending Program does share some basic themes with the Paycheck Protection Program (“PPP”) announced on April 3rd. First, companies will need to apply through their banks. The Fed has not released details for loans under this program, but it is expected details will come later this week following the close of a comment period on April 16, 2020. Second, like the PPP, this program is expected to be administered on a “first come, first serve” basis. Accordingly, businesses interested in the program should begin evaluating their eligibility and compiling necessary documentation that their banker will need. Immediately, this will include assessing current outstanding debt obligations and 2019 earnings, as this information will dictate the maximum loan amount in many cases.


The Main Street Lending Program stems from Title IV of the CARES Act (“Act”), which was enacted on March 27, 2020. The CARES Act calls for the U.S. Treasury to invest $75 billion of equity into a special-purpose vehicle, or “SPV”. The Fed will then lend additional funds on a recourse basis to the SPV, providing up to $600 billion in new or expanded bank loans to eligible borrowers. The SPV will purchase 95 percent participations in loans made to eligible borrowers under one of two facilities that are mutually exclusive: if a borrower obtains a loan under one facility, it is precluded from participating in the other facility.


The two facilities are the Main Street New Loan Facility (“MSNLF”) and the Main Street Expanded Loan Facility (“MSELF”). A borrower’s maximum amount is dictated, in part, on a its existing outstanding debt and committed but undrawn debt along with its 2019 EBIDTA (as described in more detail below). The MSNLF applies to new loans made to eligible borrowers up to a maximum loan size of $25 million. The MSELF is available to fund increases in existing term loans with a maximum loan size of $150 million. Apart from this, and how a borrower calculates the maximum loan amount, the two facilities are nearly identical.


Eligible borrowers are those companies that were in good financial standing before the crisis that have less than 15,000 employees OR $5 billion in annual revenue (regardless of the total number of employees). Similar to the PPP, borrowers must attest that they require financing due to the exigent circumstances presented by the COVID-19 pandemic. What’s more, borrowers must agree to use the proceeds of a loan under the MSNLF or MSELF to make reasonable efforts to maintain payroll and retain employees. And while a borrower is not prevented from participating in both the PPP and one of these two facilities, if the PPP provides adequate economic relief, then the borrower should not apply under these two facilities


Loans made under either the MSNLF or the MSELF will have a maturity longer than a PPP, up to four years (principal and interest payments deferred for one year) and will have an adjustable interest rate of the secured overnight financing rate (“SOFR”) plus 250-400 basis points. As of April 13, 2020, the SOFR was 0.02 percent.


The following highlights the differences and similarities between the PPP and the Main Street Lending Program.





Provides $349B under the SBA’s 7(a) authority to enable borrowers primarily to pay payroll costs.

Creates a new special purpose vehicle (“SPV”) to which the Fed will lend $600B (combined total between MSNLF and MSELF) to enable the SPV to purchase 95% participations in loans made by eligible lenders (who retain 5%). Treasury will invest $75B in the SPV.


  • Small businesses (e.g., 500 or less employees; within definition of “small business concern”; on SBA’s Franchise Directory; or, businesses with NAICS codes starting with 72- that have 500 or less employees per physical location).
  • Certain ineligible businesses include passive businesses such as real estate investment
  • Not owned in part or whole by undocumented aliens.
  • Proceeds must be used exclusively for domestic operations.
  • Eligible borrower is a business created or organized in the U.S. with significant domestic operations and the majority of its employees located in the U.S.
  • Up to 10,000 employees OR $2.5B in 2019 annual revenues.
  • See 12 USC § 343(3) for solvency requirements of borrowers under the Fed’s 13(3) authority.

Other Requirements 

  • Cannot apply for more than one PPP loan.
  • Cannot apply for an EIDL if used for same purposes.
  • Cannot participate in MSELF or PMCCF.
  • Similarly, for the MSELF program, borrower cannot participate in MSNLF or PMCCF.

Facility Size

Lesser of:

  • 2.5 times average total monthly payroll, plus the amount of any EIDL permitted to be refinanced; OR
  • $10M.
  • Minimum of $500K.
  • Maximum of the lesser of:
    • $25M ($150M in the case of MSELF*); OR
    • An amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 4.5 the borrower’s 2019 EBIDTA.

* In the case of the MSELF, maximum is least of (i) $150M; (ii) 30% of the borrower’s existing outstanding and committed but undrawn bank debt; or (iii) an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed 6X the borrower’s 2019 EBIDTA.

Security, Recourse, Forgiveness, etc.

  • Loan is forgivable up to 100% dependent on certain requirements and restrictions.
  • Nonrecourse
  • No collateral.
  • Non-forgivable.
  • Full recourse but guarantees not required.
  • No collateral; fully unsecured.
  • For MSELF, SPV and lender will share ratably in any collateral securing existing loans being expanded.


For amounts not forgiven:

  • 1% Interest Rate.
  • 2-year maturity.
  • 6-month deferral period.
  • No prepayment penalty.
  • SOFR* + 250 to 400 bps Adjustable Interest Rate.
  • 4-year maturity.
  • Amortization and interest deferred for one year.
  • No prepayment penalty.

* SOFR is Secured Overnight Financing intended to replace U.S. LIBOR on new financial instruments; it is published daily and as of April 13, 2020, the rate is 0.01%.

Capital Restrictions

No limitation on dividends or buybacks, but loan proceeds themselves may only be used for permitted uses.

Until 12 months after the loan is no longer outstanding:

  • The borrower may not repurchase an equity security of the borrower (or any parent company) that is listed on a national securities exchange (except to the extent required under a contractual obligation that is in effect as of March 27, 2020).
  • The borrower may not pay dividends or make other capital distributions with respect to its common stock.

Compensation Restrictions

To be eligible for full forgiveness, a borrower may not:

  • Reduce full time equivalent headcount.
  • Substantially reduce compensation, where substantial is more than 25% of the compensation paid to any employee during the first full quarter preceding loan origination.

Until 12 months after the loan is no longer outstanding:

  • No officer or employee whose total compensation in calendar 2019 exceeded $425,000 (other than an employee whose compensation is determined through a collective bargaining agreement entered into prior to March 1, 2020) may receive total compensation during any 12 consecutive months in excess of their 2019 compensation or may receive severance pay or other termination benefits which exceeds twice their 2019 compensation.
  • No officer or employee whose total compensation in calendar 2019 exceeded $3M may receive total compensation during any 12 consecutive months in excess of the sum of (i) $3M and (ii) 50% of the excess of their 2019 compensation over $3M.
  • For purposes of this section, compensation includes salary, bonuses, stock awards and other financial benefits provided by the borrower to the officer or employee.


For PPP loans, the government has waived several common fees.

  • No up-front guaranty fee payable by borrower to SBA.
  • No lender’s annual service fee (referred to as “on-going guaranty fee”).
  • No subsidy recoupment fee (typically payment to SBA when maturity of 15 years or more or borrower makes certain prepayments).
  • No fee payable to SBA for any guaranty sold into the secondary market.
  • Borrower pays an origination fee of 100 bps of the principal loan amount.
  • Lender is required to pay the SPV a facility fee of 100 bps of the principal amount purchased by the SPV (i.e., 95% of principal loan amount); Lenders are allowed to charge the borrower this fee.
  • The SPV will pay the lender 25 bps of the principal purchased for loan servicing.

Termination of the Program

Earlier of June 30, 2020 or when the $349B runs out.

Earlier of September 30, 2020 or when the SPV runs out (unless extended by the Fed and the Treasury Department).


  • All statements included in the application, including the Statements Required by Law and Executive Orders, have been read and understood by the Applicant.
  • Applicant is eligible to receive a loan under the rules in effect at the time the application is submitted that have been issued by the Small Business Administration (SBA) implementing the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (the Paycheck Protection Program Rule).
  • The Applicant either:
    • is an independent contractor, eligible self-employed individual, or sole proprietor; or
    • employs no more than the greater of 500 or employees or, if applicable, the size standard in number of employees established by the SBA in 13 C.F.R. 121.201 for the Applicant’s industry (including the alternative test).
  • Applicant will comply, whenever applicable, with the civil rights and other limitations in this form.
  • All SBA loan proceeds will be used only for business-related purposes as specified in the loan application and consistent with the Paycheck Protection Program Rule.
  • To the extent feasible, Applicant will purchase only American-made equipment and products.
  • The Applicant is not engaged in any activity that is illegal under federal, state or local law.
  • Any loan received by the Applicant under Section 7(b)(2) of the Small Business Act between January 31, 2020 and April 3, 2020 was for a purpose other than paying payroll costs and other allowable uses loans under the Paycheck Protection Program Rule.
  • Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.
  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; Applicant understands that if the funds are knowingly used for unauthorized purposes, the federal government may hold it legally liable, such as for charges of fraud.
  • The Applicant will provide to the lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.
  • Applicant understands that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.
  • During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program.
  • The information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. Applicant understands that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC §§ 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC § 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC § 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1M.
  • Applicant acknowledges that the lender will confirm the eligible loan amount using required documents submitted. Applicant understands, acknowledges and agrees that the Lender can share any tax information that Applicant has provided with SBA's authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.
  • The proceeds of the loan will not be used to repay or refinance pre-existing loans or lines of credit made by the lender to the borrower, including the pre-existing portion of the upsized loan.
  • The borrower will refrain from:
    • using the proceeds of the loan to repay other loan balances and
    • repaying other debt of equal or lower priority, with the exception of mandatory principal payments, while loan is outstanding.
  • The borrower will not cancel or reduce any existing lines of credit and will attest that it will not seek to cancel or reduce any of its outstanding lines of credit with any lender.
  • The borrower requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term.
  • It meets the EBITDA leverage condition described in the Facility Size, above.
  • It will follow compensation, stock repurchase, and capital distribution restrictions described in the Capital Restrictions and Compensation Restrictions, above.
  • It is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in Section 4019(b) of the CARES Act.


If you have questions or want more information about the CARES Act guidance, contact FGMK.


David H. Benz

Managing Director


Daniel F. Laughlin

Managing Director



The summary information in this document is being provided for education purposes only. Recipients may not rely  on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.


About FGMK


FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For over 50 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.