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.
- A company with either:
- 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.
- For any employee who earned $425,000 or more in 2019,
What Are the Loan Terms?
- 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.