New FAQs for Main Street Business Loans

Thoughtware Alert Jul 20, 2020
Pointing at a notebook with a pen and a hand

On July 15, 2020, the Federal Reserve Bank of Boston posted a revised frequently asked questions (FAQs) document on its website. Highlights include:

For borrowers: 

  • Sole proprietorships not otherwise established under law as a business are ineligible
  • Origination fees can be included in the principal balance
  • Borrowers must have financial records to calculate an adjusted 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). Entities can use the financial records of a clear predecessor or subsidiary 
  • Personal guarantees are not required under Main Street terms; however, a lender may require a guarantee as part of its underwriting process
  • Lenders and borrowers can hedge the interest and credit risk on Main Street loans
  • Borrowers can refinance existing debt with a different lender only under the Main Street Priority Loan Facility (MSPLF) program at origination. Borrowers can refinance debt maturing within 90 days during the Main Street term but not at origination  
  • A special waiver was granted to tribal businesses from the dividend and capital distribution restrictions. The waiver only covers federally or state-recognized Indian tribes and does not include Alaska native corporations 

For lenders: 

  • Regulation O1 banking restrictions apply to Main Street lending programs
  • Lenders are not permitted to include London Interbank Offered Rate (LIBOR) floors
  • Lenders may set the repayment frequency after the first year as monthly or quarterly

The FAQs are intended to address questions of broad applicability. Questions related to an individual borrower’s circumstances should be worked through with eligible lenders.

BKD has the following resources available to help you learn more about the program:

Webinar 
BKD COVID-19 Webinar Series: Main Street Lending – What Borrowers Need to Know

Articles 
Main Street Program Live – Lender List Available (July 8)
New Clarifications on Main Street Business Program, Lender Registration Opened (June 22)
Main Street Program Nears Launch – New Details (May 29)

Conclusion

BKD will continue to follow this developing situation. As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication. Visit BKD’s COVID-19 Resource Center to learn more. If you have questions, contact your BKD Trusted Advisor™ today.

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Regulation O is a Federal Reserve regulation that places limits and stipulations on the credit extensions a member bank can offer to its executive officers, principal shareholders, and directors. The regulation is designed to prevent bank directors, trustees, executive officers, or principal shareholders (“insiders”) from benefiting from favorable credit extensions. 

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