Business owners who were unable to qualify for federal Covid-crisis emergency assistance from the Payment Protection Program (PPP) need to know about the Main Street Lending Program (MSLP).

Enabled by the CARES Act on March 27, 2020, MSLP is administered by the Federal Reserve Board, which is not a normal function of the Fed. The program makes available $600 billion in federal aid to small businesses demonstrating sound financials before the Covid outbreak.

Like PPP, MSLP aid takes the form of loans with favorable terms. A very important difference from the PPP loan program, however, is that MSLP loans are not forgivable.

MSLP is intended to ease credit conditions for small business suffering from the Covid crisis. Some businesses may find its terms advantageous.

The minimum loan size is $250,000 and the term of each loan is five years. Significantly, no principal repayment is required for two years.

Ninety-five percent of the loan principal is advanced by the government. Your lender provides just 5%, but receives a 1% annual fee on the full loan amount.

Despite offering an interest- free loan for one year and requiring nothing to be repaid for two years, requiring 70% of the loan be repaid at maturity known as a balloon payment carries a risk that must be considered in evaluating an MSLP loan. Other borrowing options should be considered in lieu of the MSLP loan program.

The Main Street Lending Program is new and it was launched amid the Covid crisis. New terms governing MSLP loans were released on June 6, 2020, and are subject to change by the Federal Reserve Board at any time. The Fed released a lengthy FAQ about the program on June 26.

Proper evaluation of taking an MSLP loan requires an understanding of your personal financial and tax situation, your business' financial condition and other factors beyond the scope of this financial planning alert.

Please contact us with questions.