Cavitch Familo & Durkin, Co., L.P.A.
 

What business owners can expect from the Main Street Business Lending Program

Michael Rasor

Small and mid-sized companies that are affected by Covid-19, but otherwise profitable, will soon have opportunity to apply for loans via the $600 billion Main Street Business Lending Program, created under the CARES Act.

Who is Eligible?

  • Size/Revenue Test
    • A company with either:
      • 10,000 or fewer employees**, or
      • $2.5 billion or less in 2019 revenue
    • **The CARES Act set a minimum threshold of 500 employees, but the Treasury’s rules do not appear to include it.
  • Profitability – Borrower must have been cash-flow positive in 2019, with earnings at least $1 million (see How Much Can I Borrow?, below)
  • Pandemic¬†Certification – Borrower must attest to the need for financing due to Covid-19 pandemic

How Much Can I Borrow?

  • Minimum: $1 million
  • Maximum: Lesser of:
    • (1) $25 million, and
    • (2) 4x EBITDA, minus debt that is either
      • (a) outstanding, or
      • (b) committed but undrawn
  • Expanded Loan Facilities – For borrowers with loans in place as of April 8, 2020, and whose loans are increased thereafter, different standards apply.

What Restrictions Will the Loan Place on My Business?

  • Use of Loan Proceeds
    • Cannot cancel or reduce any other lines of credit
    • Cannot use loan proceeds for repaying or refinancing existing loans
    • Used to make reasonable efforts to retain employees during the term of the loan (at least 90% of previous headcount, according to the CARES Act)
  • Repurchase Restrictions – For 12 months after the date the loan is repaid, a borrower cannot repurchase any equity security that’s listed on a national exchange.
  • Dividend/Distribution Restriction – For 12 months after the date the loan is repaid, a borrower cannot pay dividends or make other capital distributions with respect to its common stock.
  • Compensation Restrictions. For 12 months after the date the loan is repaid, a borrower is not permitted to:
    • For any employee who earned $425,000 or more in 2019,
      • Increase total compensation beyond 2019 level, or
      • Issue severance payment exceeding 2x the employee’s 2019 pay.
    • For any employee who earned more than $3 million in 2019, the employee’s pay may not exceed:
      • $3 million; plus
      • 50 percent of the excess over $3 million earned in 2019.
  • Interest at SOFR + 250-400 basis points
  • No prepayment penalty
  • 4 year maturity
  • 1-year deferral of amortization of principal and interest payments
  • Potential 2% fee (1% facility fee, 1% origination fee)

How Do I Apply?

Applications are not yet being accepted, but loans will be proceeded through private lenders, as with PPP. Contact your primary business lender for details.

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