Fed Loans on Main Street Offer Broad Relief Without Clear Path


As part of the Main Street program, Lyons says a business could benefit from the loans, but the business continues to assess other options available under the CARES Act.

“We have two people from Lincolnshire who are focused on all of these programs,” he says.

However, there are reasons why companies backed by private equity firms might be reluctant to get a Main Street loan. On the one hand, unlike the forgivable assistance PPP provides, Main Street loans come with a four-year repayment window. Payments can be deferred for a year, but interest – which is set at the Fed’s overnight rate – begins to accrue immediately.

Other brakes, such as the limits on which institutions are allowed to lend Main Street funds, could make the application process cumbersome, leading some banks to turn down business with new customers. Over 1.6 million small businesses in the United States have been approved for P3 loans. If the same number apply for loans under the Main Street program, the banks could be overwhelmed.

At the same time, due diligence requirements for loan applications could place a significant burden on portfolio companies, according to Joseph Lynyak, a partner at law firm Dorsey and Whitney.

“It won’t be easy to be able to get one of these loans,” says Lynyak. The program was designed not so much to ease the burden on businesses but to increase market liquidity as the economy resumes operations, he adds.

Shortly after the Fed announced the Main Street loan program, the Association for Corporate Growth submitted a letter to the central bank describing a number of issues in the program that could prevent middle market companies from accessing funds.

ACG describes 10 challenges within the program and the solutions proposed for each. They include restrictions on eligible lenders, which could overwhelm banks, and the EBITDA loan sizing test, which would prevent many companies from responding to leverage tests.

By law, the Fed has wide latitude to change its policy without the involvement of other federal authorities. “Are they going to step back and change that?” I think they’re gonna have to do it because [it is] It’s going to be very difficult to find companies that are going to qualify, ”says Lynyak.

In the meantime, it appears that business funding is increasing through other federal programs. On Tuesday, the Senate approved $ 484 billion in additional aid, of which $ 310 billion is for the paycheck protection program. The House is expected to approve the measure, and President Trump has already agreed to sign the bill allowing further relief. The SBA’s adherence to the membership rules should remain unchanged.

Watching the various aid programs unfold, PE companies say they will keep an eye on how they are administered. “I just hope the politics in Washington don’t stand in the way of that relief,” says Rosen of Resilience.

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