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Navigating the MSLP loan requirements and details can be overwhelming for some companies. The FED recently hosted a webinar to help us better understand the program and the requirements behind it. Here are some of the key takeaways from the webinar:
What are the criteria for applying to the Main Street Loan Program? The main criteria are your 2019 EBITDA multiplied by four minus your debt should be greater than or equal to $500,000 for the Main Street New Loan Facility (MSNLF). For the Main Street Priority Loan Facility (MSPLF) your company’s 2019 EBITDA multiplied by six minus your debt must be greater than or equal to $500,000.
When they say EBITDA, what do they really mean? Bankers might be looking at the adjusted EBITDA like they do in their usual practice. Other items might be added back as a one-time expense in 2019 or payments to owners. This could change depending on the bank you use.
Can we reduce debt by the amount of our PPP loan that will be forgiven? You will have to wait until the loan is actually forgiven, but you should discuss this with your bank so they can consider it as a factor in their decision to lend.
Is there a required personal guarantee? There’s a little gray area with this one. The FED does not require a borrower to personally guarantee the Main Street loan. However, banks do have the final approval, so they may require a guarantee. When looking at the bank you want to get your loan from, use this as you evaluate offers from different banks.
What is the repayment structure? The repayment for the MSLP is different than the common debt instruments. For starters, there is no repayment of principal or interest in the first 12 months, although interest does accrue during this time. The principal is repaid on these schedules:
MSNLF MSPLF
Month 24 33.33% 15%
Month 36 33.33% 15%
Month 48 33.33% 70%
Interest payments will begin in the 13th month and may be monthly or quarterly.
Can the debt be refinanced? Generally, existing debt cannot be refinanced with MSLP money. Some exceptions would be if the repayment is mandatory and due, but there are still other options available under the MSPLF for debt repayment under the MSLP.
Are you able to use the funds to make distributions to owners? Pass-through entities are able to use the funds to make distributions to owners, which allows them to pay taxes incurred by the business.
What are the requirements to prove that your business has been affected by COVID-19? There is no attestation required of the borrower at this point, as the FED understands the impact of COVID-19 is broad and deep. However, borrowers must be able to show that they were current with liability payments prior to the disruption. They also may need to state that the funds are not available elsewhere, focus on the principal amount, interest rate, repayment terms, etc.
At TGG, we understand that navigating all the COVID-19 resources to understand what program is best for your business. We want to help. Visit our COVID-19 Resource page or click the links below to learn more!
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Matt Garrett is the Founder and Chief Executive Officer of TGG. He is a regular speaker across the country on behalf of Vistage educating business owners on the need for sound financial practices, and is Vice President of the Board of Directors of FINACA. Under Matt’s leadership, TGG has received the following recognition: INC. 5000 top companies in the U.S. five years in a row; one of “San Diego’s Fastest Growing Companies” the past four years; and is among San Diego’s “Best Places to Work.”
