Small business loan legislation and what it means for private companies

May 21, 2020

Carl Holshouser - Director, Strategic Policy Advisors Leader, PwC US - Email
 

As we talk about loan programs and implications for small businesses or private businesses, many may feel confused and overwhelmed trying to understand and keep up with the rules and guidelines. 

The good news is that you’re in good company. With the legislation being written so quickly and now being implemented quickly, we’re navigating this together. 

To help provide clarity, here are a few key points and recent updates we’re seeing on the expansion of the Paycheck Protection Program (PPP) and Main Street Lending Program.   

Paycheck Protection Program 

A popular program due to the loan forgiveness feature and low interest rate at 1%, we saw that  the PPP quickly ran out of money, which resulted in additional funding.

On the affiliation side, a small business is eligible for the PPP if, combined with its domestic  affiliates, it has 500 or fewer employees whose principal place of residence is in the United States, where typically SBA loans require you to look at the total global headcount. So this clarified eligibility for companies that could have a foreign parent but do have 500 or fewer domestic employees combined with affiliates. The Treasury Department also issued recent guidance limiting the funds to exclude private equity, hedge funds and other entities. Loans were capped at $20 million for enterprises. 

Additional guidance was released by the Treasury that notably gives a safe harbor for PPP loans under $2 million on the good-faith certification. It clarifies that the maximum penalty for reviewed loans over $2 million found to be ineligible will be an elimination of loan forgiveness that can be cured with loan repayment alone.

Main Street Lending Program

The Federal Reserve Board also expanded the size and scope of businesses that will be eligible for the Main Street emergency lending program. The Main Street Lending Program (MSLP) will operate through three facilities: the Main Street New Loan Facility (MSNLF), the MainStreet Priority Loan Facility (MSPLF) and the Main Street Expanded Loan Facility (MSELF).

When the Federal Reserve repositioned the MSLP at the end of April, they updated it to establish three loan programs — which are rapidly evolving. These loans cover businesses with up to 15,000 employees OR up to $5 billion in revenue. 

  1. Main Street New Loan Facility: offering loans of $500K- $25M for new loans originated on or after April 8, 2020. The maximum loan cannot, when added to the existing outstanding and undrawn available debt, exceed four times 2019 EBITDA.
  2. Main Street Priority Loan Facility: offering loans of $500K-$25M for new loans originated on or after April 8, 2020. The maximum loan cannot, when added to the existing outstanding and undrawn available debt, exceed six times 2019 EBITDA. Terms reflect higher-leveraged business entities.
  3. Main Street Expanded Loan Facility: offering expanded loans of $10M-$200M million for loans in existence as of April 8, 2020. This cannot exceed 35% of the Eligible Borrower’s existing outstanding and undrawn available debt. The maximum loan cannot, when added to the existing outstanding and undrawn available debt, exceed six times 2019 EBITDA.

All three facilities use the same eligible lender and eligible borrower criteria and have many of the same features, including the same maturity, interest rate (LIBOR + 3%), deferral of principal and interest for one year and ability of the borrower to prepay without penalty. Other features of the loans extended in connection with each facility differ.

What’s next? 

Due to Freedom of Information Act laws, you should expect that information about these loans and your application, and likely your documentation for loan forgiveness with respect to PPP, will be a matter of public record. We’re talking with clients about these programs to help them understand the dynamics of each business and how they will likely choose their own risk tolerance while taking advantage of both the PPP and MSLP. 

Also, we are carefully watching policymakers in Washington, DC, as they begin work on the fourth COVID-19 relief bill. The House Democrats released a draft bill on May 12, 2020, and we expect to see many programs and relief solutions discussed in the coming weeks.

Contact us

Shawn Panson

Private Company Services Leader, PwC US

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