A surge of interest depleted the $350 billion payroll protection program (PPP) in just under two weeks — but senior living companies that missed out on those loans may not be out of options just yet.
Senior living owners and operators facing cash flow issues due to the Covid-19 pandemic may find relief in the Federal Reserve’s new Main Street Lending Program. The program is meant to aid small and medium-sized businesses that were in good financial standing before the pandemic began. And with $600 billion available to borrowers, the program is larger than the PPP, meaning it should last longer — but there are some key differences between the two.
Perhaps the biggest difference is that loans doled out under the Main Street Lending Program are not forgivable. Some loans under the PPP functioned more like grants, as long as borrowers met certain conditions regarding maintaining payroll throughout the pandemic. But loans under the Main Street program will function like a regular loan, albeit one with lower interest rates and a more favorable window for repayment than normal, according to Kimberly Wachen, a senior partner in the real estate group of law firm Arent Fox.
“The PPP loan could be looked at as free money,” Wachen told Senior Housing News. “This is cheap money, but you have to pay it back.”
The PPP launched on April 3 with the intention of infusing small businesses across the country with much-needed cash after the U.S. economy shut down due to the Covid-19 pandemic. But demand for the forgivable loans was high, and the program ran out of money just two weeks after it began.
The Main Street Lending Program could fill the gap, even for providers that also applied to a loan under the PPP. Companies that have up to 10,000 employees or up to $2.5 billion in 2019 annual revenues are eligible for the loans. The program is split into two facilities: the Main Street New Loan Facility for borrowers applying for new loans; and the Main Street Expanded Loan Facility for borrowers working to increase the size of an existing loan.
For the new loan facility, loans have a minimum size of $1 million and a maximum size that is the lesser of either $25 million or an amount that does not exceed four times earnings before interest, taxes, depreciation, and amortization (EBITDA) when added to the borrower’s existing outstanding and committed but undrawn debt.
The expanded loan facility, meanwhile, provides funding with an existing term loan that was originated on or before April 8. These loans have a minimum size of $1 million and a maximum size that is the lesser of: $150 million; 30% of a borrower’s existing outstanding undrawn debt; or an amount that does not exceed six times earnings before interest, taxes, depreciation, and amortization (EBITDA) when added to the borrower’s existing outstanding and committed but undrawn debt.
The loans are also expected to carry a four-year term to maturity and added interest rates of the secured overnight financing rate — which on Thursday was 1.2%, Wachen said — plus 2.5% to 4%. And, principal and interest rates are deferred for one year under the program, giving borrowers some breathing room to get back to normal operations before they have to start making payments.
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Still, there are some unknowns about the new loan program. For one, it’s not clear how exactly the federal government will define EBITDA, Wachen said. The government also has not released regulations for the program, casting uncertainty over its exact specifications. And it’s not clear if there will be any restrictions for how providers may spend this money, as the PPP dictated.
The good news for borrowers is, because the new loan program has a larger cash pool, and because lenders will have to do due diligence in any loan under the program, the Main Street Lending Program will likely last longer than two weeks.
“I wouldn’t expect it to go as quickly as the PPP,” Wachen said.