We served as Borrower’s counsel on a $6,000,000 Main Street Loan under the Federal Reserve’s Main Street Lending Program.
Area of Law: Business
ALG Represented: Borrower
Transaction Type: Main Street Loan – $6,000,000, Five-year term loan
Transaction Overview: Main Street Loans v. PPP: The Federal Reserve established the Main Street Lending Program (MSLP) to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. The Program terminated on January 8, 2021.
While, the MSLP was never as widely known as the PPP (Paycheck Protection Program) it served a critical and different role — shoring up the capital base for previously profitable, financial sound businesses that suffered due to the pandemic. A simple, although not complete, way to compare the two programs is that PPP was designed to avoid massive layoffs by providing eligible enterprises money to pay salaries and retain employees. PPP money was to be received and spent within a relatively brief amount of time. Main Street Loans, on the other hand, were intended to shore up the capital base of eligible firms by making five-year loans to eligible businesses on favorable terms at a critical time when loans were scarce. Main Street Loans were fully collateralized by the business’ assets, personal guaranties from the owners and the owners’ assets.
Documents and Work. On behalf of our client, our firm led the legal work on the transaction from initial documents through Closing. This transaction involved the following documents: Credit Agreement, Term Note, Security Agreement, Pledge Agreement, Owner Guaranties, Deeds of Trust and certain MSLP specific documents along with other ancillary agreements.
A Distributed Transaction and Parties. In today’s legal practice, it is common for us to see parties spread out across several states. Here, the commercial bank lender was in North Carolina, their attorneys were in Minnesota, the Federal Reserve Bank was in Boston and our client is here in California. Over the last few years we are seeing more and more transactions with participants located outside of California who are eager to access the California market either by providing financing or acquiring.
Entrepreneuring is not for the faint of heart. There is a common anecdote that if most entrepreneurs knew at the outset what they would have had to go through to build and sell their business, many of them would have said, “No, thanks!” Creative problem solving, honesty, persistence, flexibility, prudent risk taking, faith and yes luck are just some of what you need to make it….everyday, every week and every year. We also think it helps to have a good law firm along the journey.
Roots in Banking. This financing transaction offered Chris, a former collegiate extern at the San Francisco Federal Reserve Bank and at the Board of Governors of the Federal Reserve, the opportunity to represent the client in a transaction sponsored by the Board of Governors of the Federal Reserve and administered through the Federal Reserve Bank of Boston via designated commercial bank lenders.
Client Update: Since the transaction closed in late 2020, the client’s business has rebounded sharply with the rise in vaccination rates and the return of economic activity. Less than two years into the loan term, the client has repaid half of the principal balance.