COVID-19 Response: Federal Reserve Moves Closer to Opening Main Street Lending Program
On June 24, 2020, we provided updated information on the Paycheck Protection Program and the Main Street Lending Program (MSLP), which continues to evolve before its upcoming launch. Since then, the Federal Reserve (FRB) has revised its frequently asked questions document further to provide more direction to lenders and borrowers who want to take advantage of the MSLP.
Washington, D.C. (July 1, 2020) - On June 24, 2020, we provided updated information on the Paycheck Protection Program and the Main Street Lending Program (MSLP) (see “PPP Loans and Main Street Lending Program: Current State of Play”), which continues to evolve before its upcoming launch. Since then, the Federal Reserve (FRB) has revised its frequently asked questions document further to provide more direction to lenders and borrowers who want to take advantage of the MSLP.
The new FAQs provide more granular guidance to lenders on the borrower information they must obtain to meet the MSLP participation requirements, and also contain standard forms and agreements that lenders must include as part of the loan application to the FRB. The now 74-page document gives some indication of the complexity of this program, and potential lenders and borrowers should pay close attention to eligibility and operational requirements as they assess the benefits of participating.
The MSLP was created to provide low-interest loans to small and medium-sized businesses during the current period of financial strain. The Federal Reserve Bank of Boston (FRBB) will administer the program, which is intended to make credit available to companies that were in sound financial condition prior to the onset of the COVID-19 pandemic, to maintain their operations and payroll until conditions normalize.
To date, the FRBB has received over 200 requests from lenders to register for participation in the program. At this time, however, the MSLP is not accepting loan applications and funding loans. Borrowers can apply with registered lenders and at least begin the MSLP loan process, which will incorporate the lender’s own loan documents and underwriting standards. In addition, lenders and borrowers will need to meet the FRBB requirements for participation in the MSLP. This includes compliance with all necessary lender and borrower certifications.
Until the FRBB opens the application portal, lenders that complete borrower due diligence have two options. In one scenario, a lender can fund the loan and then submit the loan documentation to the MSLP for processing when the program opens. If the documentation is complete and consistent with the MSLP requirements, the Special Purpose Vehicle that was established to implement the program will purchase the participation in the loan. Under this scenario, the lender assumes the risk that the borrower does not meet the MSLP qualifications, in which case the loan remains with the lender.
Alternatively, a lender can approve a borrower for an MSLP loan contingent on the borrower’s acceptance once the program opens. This scenario removes risk from the lender that it will be holding a loan that is rejected by the program, but does not provide the borrower with immediate access to cash.
The FRB has not provided a date when the program will open and begin processing lender submissions, but indications are that the FRBB portal to process and fund loans will become operational in the near future. The program will provide up to $600 billion for lenders to make available to borrowers.
Now is the time for lenders to work through the requirements and register to participate in the MSLP. The Lewis Brisbois COVID-19 Team has developed a “How To Guide” to assist banks in their efforts to participate in the complex MSLP. Our attorneys have extensive experience working with banks to ensure compliance with all program requirements. Please contact any of authors of this alert below. You can also visit our COVID-19 Response Resource Center to find more alerts on the many areas of law impacted by the pandemic.
Thomas A. Brooks, Partner
Katherine I. Funk, Partner
Jane C. Luxton, Partner