Main Street Lending Program: Key Practice Points

By: Michael Chernick, Tomasz Kulawik, Mohamed El-Sayed, and Lisseth A. Rincon Manzano, Shearman & Sterling LLP

This article describes the terms of the facilities available under the Main Street Lending Program, in addition to providing practice tips to lawyers whose clients are (or are considering) entering such financing.

Background

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted by the U.S. Congress and signed into law by the president in late March 2020, the Federal Reserve (Fed) announced the Main Street Lending Program (the Program). Under the Program, the Fed agreed to purchase participations in loans from a special purpose vehicle (SPV) established by the Fed as a conduit to make such loans. Pursuant to the most recent terms, the Program made available up to $600 billion in liquidity to eligible lenders that would in turn provide direct loans to eligible businesses. The Program was deployed through the Main Street New Loan Facility (MSNLF); the Main Street Expanded Loan Facility (MSELF); and the Main Street Priority Loan Facility (MSPLF and, together with MSELF and MSNLF, the Program Facilities and each a Program Facility).

To provide more direct and prioritized support to small businesses, the CARES Act also established a new Paycheck Protection Program Flexibility Act of 2020 (PPP) under Section 7(a) of the Small Business Act to provide small businesses with forgivable, low-interest, nonrecourse loans to be used for traditional Section 7(a) purposes, including plant acquisition, construction, conversion, or expansion, and loans for any qualified small business concern, in addition to special designated purposes such as payroll, healthcare, and rent. Unlike the Program Facilities, the PPP loans are fully guaranteed by the Small Business Administration (SBA) and are forgivable if they are used for the aforementioned purposes during either an 8-week period (if the loan was disbursed prior to June 5, 2020) or a 24-week period (if the loan was disbursed on or after June 5, 2020) and the borrower has maintained or rehired recently laid off employees prior to the end of the applicable 8- or 24-week period (provided that in no event will such period extend past December 31, 2020). Access to the Program Facilities and the PPP is not mutually exclusive, as both programs are intended to work together to provide both immediate and medium/long-term support to smaller businesses. CLICK HERE TO READ THE FULL ARTICLE IF YOU ARE A PRACTICAL GUIDANCE SUBSCRIBER