Main Street Loan Programs with Tony Roedersheimer
Announcer: Welcome to the ”What Matters Most” podcast presented by First United Bank & Trust. That’s my bank. Visit us today at mybank.com.
Eric: Hello, and welcome to ”What Matters Most,” the podcast, all about finances, community, savings, and security for you, your family, and your business. This podcast is brought to you by the helpful folks at my bank, First United Bank & Trust. I’m your host, Eric Nutter, and in today’s episode, ”What Matters Most” is the main street loan program. And for this helpful discussion, I am thankful to be joined remotely today by Tony Roedersheimer, Commercial relationship Manager, serving the Frederick Maryland market for First United. Hey Tony, how’s it going?
Tony: Excellent, Eric. Thanks for having me today.
Eric: Yeah, I really appreciate you joining us today. We were actually gonna start a few episode series here with you and we’ll spread these out here over the next, we’ll have these episodes over the next three or four weeks. But we’re talking about a few different topics that are really important to the, you know, the businesses in our community, talking a little bit about infrastructure of the business or how their asset utilization is. But we wanted to start off here with this Main Street Loan Program and talk a little bit more about it and what it can do for businesses and, you know, who’s eligible and things like that. So why don’t we start off, if you don’t mind, tell us just a little bit about the program. Give our listeners kind of an overview of what the program is all about.
Tony: Sure, Eric. It’s a very interesting time with the 2020 and the different programs that have been announced through the Cares Act and the Main Street Program that was announced earlier this year is just another example. And basically the idea and the spirit behind the Main Street Program was, you know, the economy had some winded at sales. And looking at that, they said, okay, we’re faced with the pandemic and COVID, you know, what can we do to help, you know, the small to middle size organization and business, you know, kind of keep that wind at their back and keep moving? And so it’s really the spirit of it is to provide capital and inject capital into small to middle sized businesses and then with some pretty generous repayment terms. So again, as a way to capitalize and provide liquidity for that, you know, small to mid-sized business.
Eric: Cool. And it was directly related to the Cares Act?
Tony: It was. So it was kind of carved out of the Cares Act.
Eric: Yeah. So that came into play here in the last six, seven months or so.
Tony: That’s right. That’s right.
Eric: So how is it the Main Street Program different than maybe the, because many of our listeners are familiar with because we’ve talked it several times over several episodes, the Paycheck Protection Program. So those both came out of the Care Act. So tell us a little bit about the differences between the two.
Tony: Yeah, and the PPP was really for, the Paycheck Protection Program was really for the employees. It was for small businesses to deploy to keep people employed during those kind of first, you know, first period of time. And the Main Street Program is really probably, it looks out a little bit further, right? It kind of is attacking not the first eight weeks, but it’s attacking the next, you know, kind of lingering impacts within, you know, within the business kind of environment. The PPP is a forgivable loan where the Main Street Loan is not a forgivable, none of that portion is forgivable. So that’s obviously a big…
Eric: It’s a big difference.
Tony: …it’s a big component that is, yeah, a big difference.
Eric: Well, and so, but the program was built to just be, as you mentioned earlier on, it’s just built favorably for the recipient of the funds.
Tony: That’s correct.
Eric: So tell us a little bit about the requirements to be eligible for a Main Street Program loan.
Tony: Yeah. You have to be an eligible borrower and there’s some literature out there that will go through that, you know, there’s limitations on company size. It’s 15,000 employees or fewer and had annual revenues of $5 billion or less. So you can see it, you know, from a small to middle size company or any, even a large company, you know, it’s kind of all encompassing.
Eric: Those are the only stipulations, just under $5 billion and 15,000 or less employees.
Tony: Yeah. There are other kind of components, but that’s kind of that create you as an eligible. You, you know, you have to employ people within the United States. You know, most of your, you know, again, you have to be domestically focused, if you will, so which is pretty standard across most government programs.
Eric: Got it.
Tony: So those are kind of the eligibility side. And then you obviously have to have, you have to work with an eligible lender as well. So.
Eric: Is that basically any community bank, any financial institution in the country, or are there specific ones to look for?
Tony: There are. I mean, there’s a list that’s actually on their website, you know, from so this is actually administered by the Federal Reserve Board of Boston and that’s where it’s kind of flows through. And, but anyone who is any bank or financial institution that is set up to process SBA loans and has filled out the appropriate paperwork to become an eligible lender, you’ll have that capability to work with them.
Eric: Gotcha. Okay. So let’s talk about the loan itself. So someone applies for this. How is the loan structured and what are the repayment terms that they need to be aware of?
Tony: Sure. So the loan is structured almost like a participation. And so your eligible lender will provide a loan for 100% of whatever the loan amount is, and then, you know, they’ll participate 95% of that loan out with the Federal Reserve Bank of Boston, so through a special purpose vehicle. So that’s something to kind of keep in mind. That’s how they set up through the Cares Act. So you’re eligible lender that you work with will obviously have to interface with that special purpose vehicle as well. The repayment, as far as it’s a five-year term loan. And again, there’s three different programs that have within it for profit entities. There’s a new loan, a priority loan and an expanded loan, and they kind of have different characteristics within themselves, but for the main part of it, it’s a five-year term. You have full principle and interest deferment for the first 12 months, an interest only period for the next 12 months, and then principal curtailments of 15% in year three, 15% in year four, and then 70% in year five. And so what you can see, again, is there’s an influx of capital that goes into a business, and then you’re not forced to pay that back really until year three from a principal standpoint, you know, starting year three. So you can see how again, you kind of put that money to work and make sure that, that you know, money is going out into, you know, into the, as working capital with some flexible repayment terms. So it’s, again, for the right business it is extremely powerful from a leverage finance standpoint, so. The main differences is really leveraged so that the new loan facility, you can go to four times your 2019 EBITDA, your priority, loan facility, you can go to six times your 2019 EBITDA, and then the expanded facility allows you to actually refinance existing debt. The other two don’t allow you to refinancing existing debt within that, so.
Eric: Gotcha. So outside of that, I mean, the uses for the loan, you don’t have to be impacted by COVID for this.
Tony: You will need to have some impact with COVID…
Eric: You have to prove someone is…
Tony: …whether that’s supply chain… That’s right. That’s right. Yep.
Eric: Okay. Got it. So speaking of, kind of these loans, you know, we’ve seen a few, but what are some of the reasons maybe some businesses are shying away from them from a program like this?
Tony: And that’s a good question and I think it’s something that you’re seeing the Main Street Program and in the main street facilities a lot in the news, you know, of how you know, basically the federal government is within and within the banking kind of realm is trying to bolster, you know, small businesses and support small businesses in this time. And so, you know, I think there’s two really big pieces as companies are digging into this that kind of give them pause. We’ll start with the first one, which is probably the most important to small businesses is, you know, their ability for compensation. And so compensation within these programs, it is actually capped to 2019 levels. And so if you have, you know, if you receive a W-2 salary, you know, some sort of salary you’re capped at 2019 levels. Additionally, if you’re an S-Corp, you’re capped on distributions only, you know, they can only cover your tax liability for future years. So you can’t, again, most business owners who are an S-Corp will, you know, pull out distributions, you know, as part of their annual compensation. You know, utilization of this program will not allow that, so, and it actually extends to 12 months past the term of the loan. So if you pay it off in year one, those limitations actually continue to increase, you know, for the next 12 months, they stay in place. So that’s a big one. It also limits, you know, in the same kind of vein, it limits repurchase of stock. So basically you can’t use this money to increase your position, you know, from a corporate standpoint or take further distributions. So, that’s one that is…
Eric: Right. It’s to help you get your business going.
Tony: That’s right. Not to pull anything out. And so that’s where the limitations are, is, you know, listen, you know, we can’t allow you to inject this and then pull it out and some other manner, you know, some other manner. So that is a big one. The second, you know, the other big one is the reporting requirements. So, you know, a lot of organizations report, you know, on an annual basis. These programs require quarterly financial reports. And so, you know, if you don’t and it’s timely quarterly financial reports, and so if you don’t have that infrastructure and you don’t have that already built in trying to take that on for this…
Eric: Will be challenging.
Tony: …it can be daunting. Yeah.
Eric: And that all flows through the financial institution where you get the funds from?
Tony: That’s right. So they would collect and then they would interface and submit those, you know, as a requirement for the loan, so, because they’re gonna want those as well, you know, your financial institution.
Eric: And are they looking for something? So if your numbers start to slip, do they call the loan or what’s the?
Tony: That’s right. Well, I think it’s a couple of things. I think one that, you know, as sophisticated borrowers, what they are looking for here, they wanna make sure that, you know, you were having success prior to the pandemic and that you’re gonna use these funds to have, you know, that same level or continued success going forward, and part of that has to do with just the infrastructure that you’ve built over time. And so they wanna see that, you know, again, that you have prompts, you know, financial reporting and then too, it’s to basically hold you accountable to that. You know, as you look forward, if you say that I’m gonna have success going forward, and I’m gonna use these funds be successful, then, you know, they wanna monitor that on a quarterly basis. So I’m not sure exactly what the default terms are as far as, you know, what trigger, you know, if your ratio drops below X, you know, that triggers… I don’t think that’s… I don’t think that’s embedded in the covenant with the loan doc. I think it’s more in the monitoring.
Eric: Got you. Cool. Well, Tony, do you have any closing thoughts that you can share with our listeners about the Main Street Program and any thoughts for who should be considering it to reach out and learn more?
Tony: Yeah, and I definitely, I think it is just with most of the, you know, different programs that are out there and, you know, everyone who went through the PPP process understands that, you know, leveraging, you know, your financial institution and leveraging your, you know, accounting professional, CPA, getting them on board as far as what you’re thinking and letting them vet those along with an attorney, especially with the Main Street Program, you know, making sure that your entire kind of, you know, your entire group of professionals that you lean on think that this is a good idea. So start the conversation, start the conversation early if you think that this is gonna be something that benefits you and your company long term.
Eric: Got it. Cool. Is there a timing on them? Like, is there an end date when you can apply for those funds?
Tony: It does. It does end at the December 31st of this year. It is kind of a tight window if you are going to move forward to. There is definitely some sense of urgency there.
Eric: Excellent. All right, Tony, I wanna sincerely thank you for joining me today and providing such helpful insights and information about this really powerful program that could potentially help a lot of businesses out there. If any of our listeners have a question or want to learn more, what’s the best way they can get the support they need?
Tony: Sure. Yeah, they can always go to www.mybank.com and click the contact button, or if you wanna reach me directly you can always call me with any questions. The best number to reach me is (404) 435-1611. And again, my name is Tony Roedersheimer.
Eric: Awesome. Awesome. Tony, thanks again. I really appreciate it.
Tony: Thanks, Eric. Thanks for having me.
Eric: Yep. That brings us to the end of our show. You can always find more episodes by visiting mybank.com/podcast or on your favorite podcast app. And the good news is we’re on basically every podcast app there is out there, so subscribe and while you’re at it, give us a five star review. That really helps us and helps other people find our podcasts so that they can find this helpful information like Tony shared today. You can also always leave us feedback, ask questions, or request the topic for us to discuss by sending an email to firstname.lastname@example.org. Thanks for listening. We’ll be back next week with more helpful content. But until then, we wish you the best in focusing on what matters most to you.
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