I’ve received a lot of questions about the new Main Street Lending Program. This post is meant to provide general non-technical information as a starting point in evaluating whether the program may work for your business.
What is the Main Street Lending program?
A program established by Congress run through the Federal Reserve offering loans from $250,000 to $35 million. It is run through three different programs, run outside of and separate from the Small Business Administration, for businesses who were financially healthy before the pandemic.
Who is eligible for the Main Street Lending program?
Small businesses that existed before the pandemic, including nonprofits. Basically the same eligibility screening rules as applied to eligibility for the Paycheck Protection Program are used here.
What is the minimum and maximum size business that will qualify?
Businesses with income plus interest, taxes, depreciation and amortization of about $50,000 per year. Maximum size limits are set by law but most that consider themselves to be “small businesses” are not affected by these limits.
Should I apply?
Borrowing is risky in this economy. Not all businesses should apply. The decision should be based on an analysis of your business financial recovery plan. A cash flow analysis is key to this decision.
Is payroll required?
No
Is it open?
Last week the Federal Reserve announced that the program was open for banks to register and encouraged banks to begin making loans. Observers believe that banks will slow to get involved.
Will participation be made public?
Yes
How to apply?
Find a participating lender or a small business financial adviser. The business representative handling the loan application on behalf of the business have a background in small business lending and financial recovery planning to improve the probability of success.
What determines the loan size?
The loan amount is four to six times the net income of the business plus interest, taxes, depreciation, and amortization added back.
Is the loan underwritten?
Yes, it will require more documentation than the PPP. Credit will be evaluated. The lender may require additional requirements above the federal government’s requirements.
Can existing higher interest debt be refinanced?
Partly, especially if the refinance will improve cash flow.
Can PPP funding be used to pay for the labor requirement and loan origination fee of the Main Street loan?
Yes, presumably, but that is not stated in the federal guidance.
Are you handling loan applications on behalf of new small business clients?
Yes, for businesses that have or are willing to develop a supporting business recovery financial plan and are willing to make improvements to address existing financial and accounting deficiencies that restrict their ability to obtain future financing. The business plan, of course, must support the advisability of taking the loan.
How can I learn more?
I offer a free consultation at www.tonynovak.com.
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