Let’s connect!

A Borrower’s Guide to the Recent Updates to the Main Street Lending Program

Joseph Most, J.D. and Ken Maeng, J.D.

6.23.20 | Client Alert – COVID-19 Update

On June 20, 2020, the Federal Reserve Bank released updated Frequently Asked Questions (FAQs) for its highly-anticipated Main Street Lending Program (Program) and on June 8, 2020, the Federal Reserve released updated term sheets for the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF).

Notable updates to the Federal Reserve’s FAQs include:

  • Details pertaining to the affiliation rules;
  • Clarification of an eligible “U.S. business”;
  • EBITDA calculation;
  • Annual and quarterly financial reporting obligations; and
  • Certain revised borrower certifications and covenants.

Additionally, updates to the terms of each of the three loan facilities include:

  • Reduced minimum loan amounts for the MSNLF and MSPLF to $250,000 (from $500,000);
  • Increased maximum loan amounts for all loan options;
  • Extension of the Program’s loan repayment period to five years (instead of four years); and
  • Deferment of principal payments for the first two years (rather than one year).

Key updates to the FAQs and terms are addressed in greater detail below:

I. Borrower Eligibility

U.S. Business Requirement and Affiliation Rules

The FAQs clarified the requirement that a borrower must be a “U.S. Business” to be eligible to participate in one of the three facilities. A U.S. Business is one that:

  • Is created or organized in the U.S. or under U.S. law;
  • Has significant operations in the U.S. and
  • Has a majority of its employees based in the U.S.

A borrower may be a subsidiary of a foreign company. However, the proceeds of a loan may not be used for the benefit of any borrower’s foreign parents, affiliates, or subsidiaries.

Significant Operations in the U.S. Test

The test of “significant operations in the U.S.” is determined on a consolidated basis together with the borrower’s subsidiaries, but not its parent companies or affiliates. For example, this test will be met if the borrower has greater than 50% of:

  • Assets located in the U.S., or
  • Annual net income, operating revenues or consolidated operating expenses (excluding debt service expenses) generated in the U.S.


Currently, non-profits are ineligible to participate in the Main Street Lending Program. However, the Federal Reserve announced its intention to establish a loan option suitable for non-profit organizations.

II. Calculation of 2019 Adjusted EBITDA1

2019 Adjusted EBITDA

Adjusted EBITDA is the key underwriting metric required for loans under the Program. An eligible lender must require an eligible borrower to calculate its adjusted EBITDA using the same methodology the lender required prior to April 24, 2020.


Consider the following table below, which illustrates the adjusted EBITDA calculation (see Updated Loan Terms below for more detail).

XYZ Co.Year 2019
Gross Profit$375,000
Operating Expenses
Total Operating Expenses$90,000
Other Income$1,000
Non-recurring, one-time, or irregular items$0
Adjusted EBITDA$286,000

XYZ Co. has an outstanding debt and undrawn debt for $100,000 and its maximum loan amounts for each Program are the following:


($286,000 x 4) – $100,000 = $1,044,000


($286,000 x 6) – $100,000 = $1,616,000

Assuming XYZ Co. is an eligible borrower, it may participate in either the MSNLF or the MSPLF. However, XYZ Co. does not meet the minimum loan amount under the MSELF.

III. Clarifications of Priority and Security of Facilities

In general, all three loans under the Program cannot be subordinated to other indebtedness. In addition, the loans under the MSPLF and the MSELF must be senior or pari passu to the borrower’s other credit facilities (other than debt secured by real property). While the two loans can either be unsecured or secured, if the borrower has other secured debt (other than mortgage debt) at the time either of the two loan is originated, then the applicable loan must also be secured.2

The FAQs introduce the concept of a Collateral Coverage Ratio, which is defined as the aggregate value of any relevant collateral security, including the pro rata value of any shared collateral, divided by the outstanding aggregate principal amount of the relevant debt. If a loan under the MSPLF is secured, it must maintain a Collateral Coverage Ratio of “either (i) at least 200% or (ii) not less than the aggregate Collateral Coverage Ratio for all” other secured loans of the borrower (other than mortgage debt). If a loan under the MSPLF is secured by the same collateral as any of the eligible borrower’s other loans or debt instruments (other than mortgage debt), the lien securing the MSPLF loan must remain senior to or pari passu with, in terms of priority and security, the liens of the other creditors on the shared collateral. Liens on shared collateral do not have to cover all assets.

IV. Updates to Borrower Certifications and Covenants

Commercially Reasonable Efforts

Eligible Borrowers must make commercially reasonable efforts to retain employees during the term of the loan. A “commercially reasonable effort” means, in short, a good-faith effort to maintain payroll and retain employees, in light of its capacities, the economy, its available resources, and the business need for labor.

A borrower who, prior to its participation in the Program, laid-off or furloughed workers due to COVID-19 remains eligible to participate in the Program, assuming other eligibility criteria are met.

Inability to Secure “Adequate Credit Accommodations”

Eligible Borrowers must certify that they are unable to secure “adequate credit accommodations” from other lenders. The Federal Reserve has clarified that this does not mean that no credit from other sources is available to the borrower. Instead, a borrower can certify that it is unable to secure “adequate credit accommodations” because the credit available from other sources are inadequate for the borrower’s needs.

Principal and Interest Payments That Are “Mandatory and Due”

Eligible Borrowers generally must refrain from repaying the principal balance of, or paying any interest on, other debt payments (other than payments that are mandatory and due) until the Program loan has been repaid. Debt and interest payments are considered “mandatory and due” if the incurrence of new debt automatically triggers a prepayment of an existing debt. Such prepayments can only be paid if they are de minimis, except in the case of the MSPLF which permits the refinancing of debt of other lenders at the time of origination of the MSPLF.

Mandatory Prepayment

For each loan type, the borrower certifications and covenants must contain a provision that requires prepayment if borrower breaches certain covenants or makes a material misstatement with respect to certain certifications.

V. Borrowers’ Annual and Quarterly Financial Reporting Obligations

Each Eligible Borrower is subject to certain annual and quarterly financial reporting requirements which are consistent among all loan options. Quarterly reporting requirements vary.

Federal Reserve FAQs are subject to change. For future updates, go to www.federalreserve.gov.

VI. Main Street SPV Waived Right to Assert Special Administrative Priority

In the event a borrower receives loan proceeds and later files for bankruptcy or undergoes a restructuring, the Main Street Special Purpose Vehicle (SPV) has waived and disclaimed its right to assert special administrative priority under Section 507(a)(2) of the Bankruptcy Code. The underlying purposes of the Main Street SPV’s waiver of its right to assert priority includes but is not limited to:

  • Encourage Eligible Lenders to extend credit to Eligible Borrowers, especially to those they already extended credit
  • Enhance taxpayer recovery by avoiding technical cross-defaults related to an Eligible Borrower’s other existing debt obligations

VII. Borrower Information Disclosed by the Federal Reserve

During the operation of the facilities and one year after termination of the facilities, the Federal Reserve will disclose borrowers’ information including the:

  • Names and identifying details;
  • Amount borrowed;
  • Interest rate or discount paid;
  • Information concerning the types and amounts of collateral pledged or assets transferred in connection with participation in the facilities;
  • Overall costs, revenues, and other fees.

VIII. Updated Loan Terms

 Main Street New Loan Facility (MSNLF)Main Street Priority Loan Facility (MSPLF)Main Street Expanded Loan Facility (MSELF)
Interaction with PPP and EDIL A business (including its affiliates) may receive both a PPP or Economic Injury Disaster (EDIL) loan and one of the three Main Street Loan Options.
A business that defaulted on a Federal loan, including PPP and EDIL, is not eligible for the Main Street Lending Program.
Minimum Loan Amount$250,000
(previously $500,000)
Maximum Loan Amount3Lesser of:
(1) $35M or
(2) An amount that, when added to existing outstanding and undrawn debt, does not exceed 4x 2019 adjusted EBITDA
(previously $25M)
Lesser of:
(1) $50M or
(2) An amount that, when added to existing outstanding and undrawn debt, does not exceed 6x 2019 adjusted EBITDA
(previously $25M)
Lesser of:
(1) $300M or
(2) An amount that, when added to existing outstanding and undrawn debt, does not exceed 6x 2019 adjusted EBITDA
(previously $200M)
Term (Loan Maturity) 5 years
(previously 4 years)
SecurityMay be secured or unsecured.Upsized tranche must be secured if the underlying loan is secured. Collateral must be secured on a pari passu basis.
PriorityMust not be contractually subordinated in terms of priority to any of the borrower’s other debt.Must be senior to or pari passu with, in terms of priority and security, the borrower’s other debt except for mortgage debt
Term (Loan Maturity) 5 years
(previously 4 years)
Repayment (Deferral) & AmortizationYears 1 & 2: principal and interest are deferred
Years 3 & 4: principal amortization of 15% at each year end
Year 5: balloon payment of 70% at maturity (end of 5th year)
PrepaymentPermitted without penalty
Interest Rate LIBOR (1 or 3 month) + 300 basis points
Fees• Paid by lender: 1% transaction fee which may be passed on to borrower

• Paid by borrower: up to 1% origination fee

• Paid by Fed. gov’t: .25% servicing fee

• Paid by lender: .75% transaction fee which may be passed on to borrower

• Paid by borrower: up to .75% origination fee

• Paid by Fed. gov’t: .25% servicing fee
Participation Percentage95%
Lender Retention5%
RecourseYes. All three Main Street loans are recourse loans.
Forgiveness No. Unlike PPP loans, Main Street loans continue to be unforgivable.
Borrower Covenants (Compensation, Stock Repurchase, and Capital Distribution) Adhere to the restrictions on executive compensation, stock repurchase, and capital distribution4 under the CARES Act.
Borrower Covenants(Retaining Employees) Must make commercially reasonable efforts to maintain its payroll and retain its employees during the time the Eligible Loan is outstanding. Borrowers that have already laid off or furloughed workers from COVID-19 are eligible to apply.
Borrower Covenants (Debt Repayments) May not make payments of principal and interest on other debt unless the payment is mandatory and due. In addition, Eligible Borrowers cannot cancel or reduce any existing lines of credit except in the case of default.
Borrower Covenants (Conflict of Interest) The Eligible Borrower must certify that it is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.
Use of Proceeds (Refinancing Loans Owed to Other Lenders) Not permitted.Proceeds may be used to refinance existing loans owed to other lendersNot permitted.


Congress, the Federal Reserve, and the SBA continue to refine the Main Street Lending Program and other relief programs designed to suit the needs of small and mid-sized businesses to generally make them more borrower friendly and clarify ambiguities. As the data comes in concerning the efficacy of these relief efforts, Congress and federal agency leaders have publicly and regularly expressed a willingness and strong desire to further modify and/or supplement these facilities to ensure the economic recovery continues unabated.

We encourage interested borrowers to contact their Berdon Advisor to further explore opportunities associated with the Main Street Lending Program.

Berdon LLP New York Accountants

1 “Adjusted EBITDA” is defined as the unadjusted EBITDA adjusted for any non-recurring, one-time, or irregular items. The adjusted EBITDA should align with the relevant facility’s term sheet.
2 Under the MSELF, the loan must also be secured by the collateral securing the underlying facility on a pari passu basis. New collateral can be added. If the underlying credit facility includes both term loan tranche(s) and revolver tranche(s), the MSELF needs to share collateral on a pari passu basis with the term loan tranche(s) only.
3 The portion of any outstanding PPP loan that has not yet been forgiven is counted as outstanding debt.
4 Restrictions on dividends and other capital distributions will not apply to S-corporations or other pass-through entities to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings.