Part 1 of a 2-part series
In the early days of the pandemic, emergency financing options, including the Paycheck Protection Program (PPP), were made available to help businesses manage day-to-day expenses. But not all lending available from the federal government is rescue financing.
The Federal Reserve Main Street Lending Program is designed to help credit flow to small and medium-sized for-profit businesses and nonprofit organizations that were in sound financial condition before the onset of the crisis, but now need loans to help maintain their operations until they have recovered from, or adapted to, the impacts of the pandemic. (Nonprofit organizations will be discussed in our next series.)
The program offers five-year loans, with floating rates, and principal and interest payments deferred to assist those experiencing temporary cash flow interruptions. Loan size starts at $250,000 and ranges up to $300 million for some loan types. Principal payments are deferred for two years with payment percentages of 15%, 15%, and 70% commencing in years 3-5 respectively. Interest payments are deferred for one year. Loans may be secured or unsecured but may not be contractually subordinated in terms of priority to the borrower’s other loans or debt instruments.
It is important to note that Main Street loans are not grants and cannot be forgiven. However, borrowers that received a PPP Loan can also receive a Main Street Loan provided they are an eligible borrower.
How it works: Interested borrowers work with an eligible lender to determine if they meet the program requirements, as well as the lender’s own underwriting standards. The Federal Reserve Bank of Boston has set up a $600 billion special purpose vehicle to purchase 95% interest in eligible loans with the lender retaining the 5% balance.
To get started, borrowers should review the program and contact their financial institution to inquire about participation. There’s tremendous value in working with a client-focused, relationship-driven banker who’ll invest the time necessary to get to know a business and understand its unique needs. The path to long-term success is for businesses to develop long-term relationships with bankers who demonstrate expertise, experience and dedication to their success.
Mission Valley Bank is a locally owned, full service, independent community business bank headquartered in Sun Valley, California with a business banking office in Santa Clarita. They have SBA Preferred Lender status and are participating as an eligible lender accepting new customers in the Main Street Lending Program. For more information visit www.MissionValleyBank.com or call (818) 394-2300.