On April 17, 2020, Chuck Morton was quoted in Inc. regarding the important conditions businesses need to be aware of before applying for a loan under the Federal Reserve’s new Main Street Lending Program.
According to the article, the program, first announced March 27 as part of the $2.3 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, is aimed at supplying relatively low-interest loans to companies with as many as 10,000 employees. It is expected to support up to $600 billion in new loans.
The amount of debt businesses are allowed to take on under the program is far greater than usual, says Morton. Banks typically prefer to lend around two and a half or three times a borrower's earnings before interest, taxes, depreciation, and amortization (EBITDA). Under the Main Street program, the maximum amount of the loans is four times EBITDA or six times EBITDA, depending on the elected facility.
Historically banks have been hesitant to let businesses become that leveraged, out of concern they wouldn't get their money back, Morton says. So the fact that you can take out such a large loan doesn't mean you should. Think hard about what your business will be able to manage. "The decision for any business to take on the amount of debt that is possible under the Main Street program, which you have to pay back in four years at interest rates that are not much better than what they could get commercially, is a very different calculus," Morton says.