The $600 billion Main Street Lending Program is the next to be introduced. It follows the PPP, which has seen fewer applications as its funding begins to run out, and the SBA’s longstanding Economic Injury Disaster Loan program, which had its loan amounts capped this week and applications limited to agricultural businesses.
Main Street has no start date, but attorneys who led a GNO Inc. webinar on Friday said they expect one possibly in the next two weeks. Guidance on how the program will affect lenders is still being discussed with the Federal Reserve, the entity servicing the program.
“Many of our clients have begun expressing interest,” said Chris Kane, a partner at Adams and Reese. “Lenders are doing a wait-and-see approach.”
Like the PPP, Main Street provides loans through private lenders. It aims to help small to medium-size businesses that were “in good shape before the Paycheck Protection Program and are still in decent shape,” said Marshall Page, a partner at Jones Walker.
Unlike the PPP, Main Street loans are not eligible for forgiveness. But Main Street does provide more “looseness” in terms of eligibility and how the loans can be used, Kane said.
Loans range from a minimum of $500,000 to a maximum of $10 million, with payments deferred for the first year and up to four years to pay them off. The Fed has expanded the program to include businesses with up to 15,000 employees and up to $5 billion in 2019 revenues.
The idea is that borrowers would apply through their lenders, who make a determination on their loan. Banks retain a 5% to 15% share, then sell the remaining portion to the Fed, which creates a protection component to the lender on making cash available.
Businesses that are looking for a loan program that is a bit easier to navigate may find Main Street attractive. Kane said it’s not tied to a mathematical formula related to payroll expenses like the PPP.
“This is a more traditional (version) of a loan,” he said. “But there is that component on the front end that says you can’t take this loan and 30 days later lay off your workforce.”
Businesses that already received a PPP loan may also apply for a Main Street loan.
The end date of the program is Sept. 30, which may be extended depending on when the application process begins.
Not all businesses are eligible to apply, notably nonprofits. Kane said that could change, as the Fed is evaluating the program and will provide guidance if they determine nonprofits can participate.
It’s not clear whether every lender will participate as they did with the PPP.
Most have been working around the clock on PPP loans and expect additional work when the forgiveness portion begins this summer.
They could get new business out of Main Street, since the program allows refinancing of debt from another lender.
But many have not yet committed, mostly because the participation agreements are still being finalized and all of the details have yet to be unveiled.
Some lenders are wondering whether the Fed will require them to service the loan in a stricter way than the PPP, and if they will be held accountable if the Fed takes a loss, Page said.
“Hopefully the Fed will not have a tough approach when they come out with the participation agreements so that lenders can feel better about going forward,” he said.
John Zollinger, Home Bank’s New Orleans market president, said he’ll be looking at whether Main Street fits clients’ needs. Currently there is not enough information on who it can best serve and what the best application process would be, he said.
“If the clients need it, we will do our best to deliver,” he said. “We just haven’t had a lot of clients holding up their hands and saying, ‘We want it.’ We’ve had a few instances of clients asking what it is and trying to figure out whether it will work for them.”
As of Thursday, the bank had processed nearly 2,600 PPP applications for a total of over $267 million in loans. Applications “have slowed greatly,” Zollinger said.
He’s now shifting focus to the forgiveness portion of the PPP. Most businesses are expected to use up their eight-week cash flow by the end of June, and banks have 60 days to provide forgiveness.
While they wait for Main Street to be launched, Kane said interested borrowers should begin preparing underwriting materials such as their business’ financials and projects and making sure they are eligible for the loans.
Applicants must certify they have the ability to pay their obligations, maintain their payroll and employees and not file bankruptcy for 90 days, he said.
“If this program ends up being designed similar to the PPP, the full brunt of eligibility certification will fall on the borrower,” he said. “It’s not as though you can say, ‘OK, I’m not really sure if I’m eligible, but let’s see if the bank catches it.’ The brunt will fall on you, and this is a federal program and one where there could be criminal liabilities for knowingly or unknowingly failing to prove certification.”
Kane also suggested potential borrowers begin reaching out to banks to determine which ones are participating.
“Some may say no. Others may say, ‘Only if borrowers are asking,’ and others may say, ‘Yes, we’re ready to go,’” he said. “You might be able to talk to a few banks and get an idea of who’s interested, thus expediting your loan,” he said.