Federal Reserve

The Fed is expanding its Main Street lending to include bigger businesses

Key Points
  • The Federal Reserve is expanding its Main Street lending program to allow businesses with up to 15,000 workers to apply.
  • The previous limit had been 10,000 with revenue of $2.5 billion. The new rules also raise the revenue limit to $5 billion.
  • Changes announced Thursday also expand the types of loans that will be available.
The Fed adds a third loan option for companies with more debt
The Fed adds a third loan option for companies with more debt

The Federal Reserve said Thursday it is expanding its Main Street lending program, opening it to businesses larger and broadening the types of loans that will be available.

Touted as one of the cornerstone's the Fed's initiatives to get money to businesses and households in need, the Main Street program now will allow companies with up to 15,000 employees and $5 billion in revenue to apply for financing.

That's up from the previous limit of 10,000 workers and $2.5 billion in revenue for a program targeted at medium-sized firms whose operations have been hamstrung by the social distancing efforts put into place to limit the spread of the coronavirus.

The Fed is also offering a different set of loans. The changes break the loans into three categories: new, priority and expanded. New and priority loans have a minimum size of $500,000, but expanded loans are for $10 million and up. 

Maximum loan sizes vary: For new loans, the limit is either $25 million or four times 2019 adjusted earnings before taxes, interest, depreciation and amortization, whichever is less, while priority loans have a maximum of $25 million or six times EBITDA. Expanded loans are limited at $200 million or 35% of undrawn or outstanding debt, or six times EBITDA.

Terms of the loans are two to four years at a rate of LIBOR, the overnight borrowing benchmark for banks, plus 3%.

The new loan option will now have banks assume 15% of the loan with the Fed assuming the rest. Existing loans entail a 5% ownership for banks.

A Fed announcement said the change was made after soliciting input on the program's initial details. Some 2,200 individuals, businesses and nonprofits sent responses, prompting the Fed to expand the program's offerings as well as the size of the entities that would be eligible.