Recent updates to the Federal Reserve’s Main Street loan program
In September, the Fed released its latest revised FAQ clarifying aspects of its Main Street Lending Program (MSLP). Below, we’ve summarized the key elements of these changes.
The most important adjustment to the program may be the Fed’s clarification regarding lender underwriting. FAQ I.2 appears to be an apparent attempt to revive the program, with the Fed saying lenders should conduct assessments of the pre-pandemic financial situation and post-pandemic outlook of potential borrowers.
Additionally, in FAQ K.4, the Fed states that it “… will not criticize qualifying lenders for providing Main Street loans in accordance with program requirements, including cases where such loans are deemed non-compliant. successful at the time of origination, provided that these weaknesses stem from the pandemic and are expected to be temporary or if these loans are part of a bank’s prudent risk mitigation strategy for an existing borrower. “
Another set of FAQs (H.20 – H.22) clarifies the restrictions on lending between eligible borrowers and owners, employees or officers. Based on these updates, a loan made by a qualifying borrower to a homeowner after the granting of an MSLP loan will be presumed to be a distribution of capital, unless it is a good faith loan and reimbursed according to its terms. Good faith loans are loans that are written instruments with market terms and a reasonable expectation of repayment that is enforceable under state law with remedies in the event of default.
Loans to an eligible borrower from its owner that are repaid are subject to the same conditions as those described above.
Loans made to an owner prior to the granting of an MSLP loan will be deemed to be distributions of capital if it is canceled or discharged or if the eligible borrower does not exercise its rights as a creditor.
Finally, loans made by an eligible borrower to an employee or officer must be analyzed to determine whether they should be included as compensation under federal tax rules. This applies to loans, total or partial forgiveness or discharge of these loans and loans with lower interest rates than the market.
Barry Sussman, CPA / CFF, ABV is director and Stephen Bonder, CPA, MST, MBA is the industry leading partner – private client and family office for blumshapiro. To learn more, visit www.blumshapiro.com.