Here are the five major alterations to the MSELF loan program requirements:
- Companies with existing debt can get into the program. In the MSELF requirements before, you had to have less than four times the debt to EBITDA ratio. Now, you can acquire additional debt on top of your existing debt. One thing to consider is that banks will be taking additional risk, it went from 5% of the principal risk to 15% of the principal risk. So, banks will be more cautious in lending to companies that have this risk associated with them. However, there is still the option of going into the program, so that is beneficial for some companies.
- Companies with up to 2.5 billion in revenue can get into the program. The Federal Reserve opened the program up to eligible larger companies.
- The minimum loan size is reduced to $500,000. They took it down from $1 million to $500,000. This is extremely beneficial for companies, now at four times EBITDA, that is only $125,000 EBITDA to get into the loan program.
- The Fed redefined EBITDA. Small companies typically do other things beyond EBITDA like add-backs (owners compensation, excessive compensation, car allowance, etc.) The Federal Reserve allows the definition of EBITDA to be the existing definition at your specific bank.
- Lastly, regarding pass-through allows small businesses that pay taxes with distributions to be eligible. Small companies who take tax distributions out on a quarterly basis only to pay taxes, still enables you to qualify for the MSELF program. However, you cannot use those distributions to pay for yourself to be eligible.
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