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Federal Reserve Announces Changes to MSLP, Including Lower Minimum Loans and Clarification for PPP Borrowers

October 30, 2020

On October 30, 2020 the Federal Reserve announced changes to its Main Street Lending Program (Main Street Program). As previously described for private borrowers and for non-profit borrowers, this program provides up to $600 billion in liquidity to eligible lenders that make direct loans to eligible for-profit businesses and certain non-profit organizations. According to the Federal Reserve, the Main Street Program has made almost 400 loans totaling $3.7 billion, or 0.62% of program capacity, since its launch this summer. The program has attracted criticism for imposing terms that many view as restricting wider acceptance by borrowers and lenders alike. This is evidenced by the relatively small take-up to date.

In particular, many potential borrowers have wanted to apply for Main Street loans in amounts less than the minimum, including small businesses that participated in the Paycheck Protection Program (PPP). In response, the Federal Reserve has now reduced the minimum loan size for three Main Street Program facilities available to for-profit and non-profit borrowers from $250,000 to $100,000 and adjusted the fees to encourage lenders to make these smaller loans. Additionally, a new Frequently Asked Question was issued clarifying that PPP loans of up to $2 million may be excluded for purposes of determining the maximum loan size under the Main Street Program if certain requirements are met.

Specifically, (i) if the eligible borrower has applied for forgiveness of its PPP loan, the “Forgiveness Amount” as reported by the borrower may be excluded, except to the extent the PPP lender or Small Business Administration (SBA) has determined such amount is ineligible for forgiveness; and (ii) if the eligible borrower has not yet applied for forgiveness of its PPP loan, the amount that it has a reasonable, good-faith basis to believe will be forgiven may be excluded. In all other cases, PPP loans may not be excluded for purposes of determining the maximum loan size under the Main Street Program, except to the extent that the SBA has actually determined that such loans are eligible for forgiveness.

On October 31, the Federal Reserve announced that the applicable legal documents have been updated to reflect these changes, and that the Main Street Portal is now accepting loans relying on these revised terms.

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