Cape May, NJ

Main Street Lending Program FAQs Updated

On July 15, an updated FAQ document was released on the Main Street Lending Program (MSLP).

Key updates include:

Revised Definition of Ineligible Businesses
A recently released definition of ineligibility provided by the SBA and Treasury for the Paycheck Protection Program has been adopted for the Main Street Lending program. Ineligible businesses include those where “an owner of 20 percent or more of the equity of the applicant is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for, a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year”.

In addition, a sole proprietor who is not otherwise established as a “business” as defined by the program is not an eligible borrower under the Main Street program.

Borrowers are expected to review all criteria for eligibility and ensure they make a reasonable, good-faith effort to determine their eligibility.

Clarification on loan terms
Certain terms of the Main Street Loan have been updated, including:

  • Lenders may charge certain fees to borrowers, and fees may be included in the principal amount of the loan.
  • While the interest rate is calculated based on LIBOR, LIBOR floors are not permitted.
  • Borrowers who were established before March 13, 2020, but who cannot produce sufficient financial history to establish their financial condition before the COVID-19 pandemic may not be eligible for a Main Street loan. However, those entities with clear predecessors or subsidiaries may be permitted to use the financial records of these predecessors or subsidiaries.
  • The program generally prohibits using the funds for the benefit of the borrower’s foreign parents, affiliates, or subsidiaries, or to refinance or pay existing debt, nor can the loan funds (or any funds) be used to pay dividends, distribute capital, repurchase equity, pay compensation over certain thresholds or repay debt ahead of schedule, unless otherwise specified in the program terms. Borrowers or prospective borrowers are encouraged to review all loan terms and ensure compliance with the provisions for using the funds.

Clarifications to capital distribution restrictions
The CARES Act provides specific restrictions on compensation, stock repurchase, and capital distributions for borrowers of a Main Street Loan. However, these restrictions do not apply to “distributions made by an S Corporation or other tax pass-through entities to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings or distributions made by a tribal business to a tribal government owner.” Additional information pertaining to tribal businesses is provided in FAQ H.15.

To review the latest FAQ document as well as term sheets and other program information, please visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.

If you have questions about the Main Street Lending Program or other COVID-19 relief options, please contact your HBK Advisor.

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About the Author(s)
Amy Reynallt is a Manager with the HBK Manufacturing Solutions Group in the Youngstown, Ohio office of HBK CPAs & Consultants. She is experienced in navigating the strategic and financial matters associated with manufacturing and works closely with manufacturers to help them plan, execute, and meet their short- and long-term financial goals. Amy can be reached at 330-758-8613 or by email at areynallt@hbkcpa.com.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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