The world is in chaos and the US government is doing everything it can to keep our economy stable. Hundreds of Billions of dollars have been spent in the last couple of months with what seems to be little to no oversight.
With many small businesses still struggling to survive during this pandemic, there are still a lot of opportunities to be had.
As part of the CARES Act, the Federal Treasury has started a lending program that has been in the works for months now. Very few people have heard about the Main Street Lending Program as it has been overshadowed by the Paycheck Protection Program and the Economic Injury Disaster Assistance Loan. (Click HERE to join a free Webinar we will be hosting to provide a more detailed overview of the Main Street Lending Program)
The Federal Treasury has finally opened up this program in late June and eligible businesses will soon be able to apply for these loans until it closes on September 30th or the funds dry up.
Some businesses will use this to bridge themselves until we get back to what we hope is “normal”. Others will use this loan as a means to push forward and upward. There is still a lot of opportunity to make money in what seems to be chaos and this program will be the fire to fuel it.
Here are the highlights of the Main Street Lending Program:
- There are 3 different types of loans, each with their own unique purpose,
- Minimum Loan within the program is $250,000,
- Maximum loan is 4 to 6 times the business’ 2019 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) less current debt on the books, OR $35 million ($300M for the MSELP),
- 5-year loan, no principal payments for first 2 years, interest-only starting in year 2, 15% of principal due at the end of years 3 and 4, 70% remaining balance due at the end of year 5,
- Interest rate is 3% plus LIBOR (currently around 0.3%; last year around 2.4%).
Businesses who can take the most opportunity from these loans are those that require bridge loans, mezzanine financing, or secondary market financing. In addition, you may be able to refinance high-interest debt using this program.
This is a great cash-flow tool since no payments are due for the first 12 months and even after that, only interest payments are due for the second 12 months. The issue will be the large principal payments due after years 3, 4, and 5.
Some industries that could easily use this as a tool to reduce financing fees and grow their business are house flippers, who oftentimes use hard money loans at 18% interest rates and 3% closing costs or used car dealers who use secondary market financing with high fees and interest rates. Also, being able to have the cash on hand to make quick business decisions provides a competitive advantage.
Those businesses with high-interest rate loans can even refinance those loans under the Main Street Lending Program to stabilize themselves and not be hostage to these predatory lending practices.
Our firm will be hosting a free webinar to discuss how the Main Street Lending Program works, how to maximize your business’ loan, and to cover the obstacles ahead. Click the button below to register.
The Below Table From The Federal Treasury Outlines Each Of The 3 Lending Programs