SBA scrutiny of PPP loan forgiveness

ALERT: Main Street Lending Program loan size requirement lowered

November 6, 2020

The Federal Reserve recently lowered the Main Street Lending Program minimum loan size requirement from $250,000 to $100,000.

The Main Street Lending Program (MSLP) originated as part of the CARES Act in March. It was meant to provide capital to companies that didn’t qualify for the Paycheck Protection Program (PPP) but still needed assistance during the initial COVID-19 shutdown. The Federal Reserve recently lowered the minimum loan size requirement – this time dropping it from $250,000 to $100,000.

While the initial loan minimum was $1 million, it has been lowered a few times due to low uptake. To date, there have only been about 400 loans totaling $3.7 billion out of the $600 billion lending limit.

Borrowers can qualify for both a PPP loan and a MSLP loan. The Federal Reserve has clarified that PPP loans less than $2 million may be excluded when determining the maximum MSLP loan size.

While some lenders and potential borrowers do not view the terms as favorable, including the fact that 70% of principal is due in the fifth and final year of the loan term, this may still be a good option for companies that need assistance.

What you need to know

This chart summarizes the program:

Characteristics of Main Street For-Profit Business Loan Types
New loan facility Priority loan facility Expanded loan facility
Loan Term 5 years
Principal payments Prinicipal deferred for two years. Years 3-5: 15%, 15%, 70%
Interest payments Deferred for one year
Interest rate LIBOR + 3%
Loan size $100,000 to $35 million $100,000 to $50 million $10 million to $300 million
Maximum combined debt to adjusted 2019 EBITDA 4 times 6 times 6 times
Lender participation rate 5%
Fed participation rate 95%
Prepayment allowed Yes, without penalty
Business size limits 15,000 employees or fewer, or 2019 revenues of $5 billion or less
Fees Origination and transaction fees may apply

Further detail on each type of loan is available via these Federal Reserve term sheets:

Similar characteristics exist for nonprofit organizations:

Of note, there is a limited supply of Main Street Program lenders. Borrowers can find eligible lenders in their state by using this map and corresponding list from the Federal Reserve of Boston.

Additional information

For additional information and applicability to your situation, we recommend consulting with your AGH tax advisor or Shawn Sullivan using the information below.

Shawn Sullivan

Executive Vice President
Tax Services

Shawn serves as one of two primary leaders in the firm’s large tax group. He has extensive public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction, and contractor industries. In addition to enhancing business performance to minimize tax consequences, he has experience in mergers and acquisitions and international tax and business structuring.

A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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