The main street lending program has gotten less attention than other areas of the government’s pandemic response and support for businesses. However, depending on your business’ financial state and needs, it can be a powerful tool.
The main street lending program was designed for businesses that were financially sound prior to the pandemic. The minimum loan amount is $250,000, lowered in June from the an initial $500,000 minimum to allow more small to medium-sized businesses to receive support. Authorized under the CARE Act, the main street lending program is quite attractive for an array of reasons.
This lender delivered program is a commercial loan. Unlike the PPP, there is no forgivable component. However, the main street lending program does have one remarkable feature that will certainly grab the attention of all kinds of businesses. It can be used to refinance existing debt at a rate of around 3%. With that stated, it is also important to note that businesses cannot refinance existing debt with the current lender. Instead, a new lender must be found. Generally, loans are a minimum of a quarter million dollars and have a five-year term. In another piece of good news, there is a two-year payment deferment period.
The main street lending program can be used in a variety of ways; it is not simply for refinancing existing debt. Additionally, there is no penalty for prepayment. The way the program works is that lenders make the loans and then sell 95% of the loan value to the Fed. This of course means that the lender is only required to retain 5% of the loan on their balance sheet. The end result is that lenders can dramatically expand the amount of loans they can make.
An experienced broker can help you navigate the (sometimes confusing) set options available and decide what’s right for your business. Businesses looking to restructure debt or put an infusion of cash to good use will find that the main street lending program offers a very flexible loan with great interest rates.