Main Street Lending Program: What It is, How It Works

Main Street Lending Program: Fed’s COVID-Era Support for Employers

The Main Street Lending Program, launched by the Federal Reserve on April 9, 2020, aimed to support small and medium-sized businesses and nonprofit organizations impacted by the COVID-19 pandemic. The Fed made $600 billion in loan facilities available to employers that were in good financial standing before the crisis.

To encourage lending, the Fed purchased 95% of qualifying loans, while banks retained 5% to ensure responsible underwriting. In return, borrowers were expected to maintain payrolls and retain workers during the downturn.

On November 19, 2020, Treasury Secretary Steven Mnuchin declined to extend the program beyond December 31, 2020. However, the Fed allowed final processing through January 8, 2021, for loans submitted by December 14, 2020.

Key Takeaways

The Federal Reserve purchased 95% of loans issued to small- and medium-sized businesses and nonprofits under the Main Street Lending Program.
Issuing banks retained 5% of each loan to ensure responsible lending practices.
The Fed committed up to $600 billion, backed by $75 billion from the U.S. Treasury via the CARES Act.
The program officially ended on January 8, 2021, after processing final loan submissions.

How the Main Street Lending Program Worked

The Main Street Lending Program offered five-year loans to eligible employers, with terms designed to ease repayment during the COVID-19 crisis:

Interest rate: LIBOR + 3%
Interest payments: Deferred for 1 year
Principal payments: Deferred for 2 years
Year 3 & 4: 15% repayment each year
Year 5: Final 70% repayment

To qualify, businesses had to meet strict eligibility criteria:

Be a U.S. company established before March 13, 2020
Have fewer than 15,000 employees or $5 billion or less in 2019 revenue
Not receive support under Subtitle A of Title IV of the CARES Act
Not participate in the Primary Market Corporate Credit Facility (PMCCF)
Not be classified as ineligible under the Paycheck Protection Program (PPP)

Main Street Lending vs. PPP: Two Paths to Pandemic Relief

Businesses that received Paycheck Protection Program (PPP) loans were still eligible to apply for the Main Street Lending Program, with some flexibility built in. Under certain conditions, banks could exclude up to $2 million in PPP loans when calculating the maximum loan amount for Main Street eligibility.

Borrowers under the Main Street program had to comply with CARES Act restrictions including limits on executive compensation, stock buybacks, and dividend payments. The program’s goal was to keep businesses operational and employees on payroll during the COVID-19 crisis.

To encourage smaller loans, the Federal Reserve waived its 1% fee on loans under $250,000, while banks were permitted to charge up to 2% doubling their fee cap for these smaller disbursements.

Special Considerations: Nonprofits Join the Main Street Lending Program

On July 17, 2020, the Federal Reserve expanded the Main Street Lending Program to include eligible nonprofit organizations, offering pandemic relief beyond the business sector.

To qualify, nonprofits had to meet strict financial and operational criteria:

Be a 501(c)(3) or 501(c)(19) in continuous operation since January 1, 2015
Employ fewer than 15,000 workers or earn $5 billion or less in 2019 revenue
Have at least 10 employees
Maintain an endowment under $3 billion
Report a 2019 operating margin above 2%
Generate non-donation revenue equal to 60%+ of 2017–2019 expenses
Hold 60 days of cash on hand
Ensure cash and investments equal at least 55% of debt and unused credit
Not receive support under Subtitle A of Title IV of the CARES Act
Not participate in the Primary Market Corporate Credit Facility (PMCCF)
Not be classified as ineligible under the Paycheck Protection Program (PPP)

This expansion aimed to support financially sound nonprofits in maintaining operations and retaining staff during the COVID-19 crisis.

Main Street Lending Program: The Five-Part Framework

Funded in part by $75 billion from the U.S. Treasury under the CARES Act, the Main Street Lending Program was divided into five distinct loan facilities. Each targeted different borrower profiles, but employers could only participate in one facility: