Approximately $600 billion in lending capacity is still available. Under the program, the government backs 95% of loans from participating banks, but those funds won’t be available after Dec. 31.

As of Oct. 30, the Federal Reserve Bank lowered the minimum amount required for a Main Street Lending Program (MSLP) loan to $100,000 from $250,000. Announced on March 23, the MSLP was originally intended to help medium-size businesses weather the pandemic. This latest announcement signals the Fed’s expansion of the program to include more small businesses such as independent and smaller restaurants.

To date, the program has been underused, with an estimated $600 billion in lending capacity still available for eligible businesses. Under the program, 95% of any loan made by participating banks are backed by the federal government.

As of now, however, those funds will no longer be available after Dec. 31.

There are both benefits and drawbacks to the program, but it may make sense for many eligible restaurants that need continued cash flow to keep operations running during the pandemic.

Here’s what you need to know:

Who’s eligible. U.S.-based companies established before March 13, 2020, that meet Small Business Administration standards, with fewer than 15,000 employees, among other requirements.

Loan terms. You can borrow a minimum of $100,000 up to a maximum of five times company earnings before interest, taxes, depreciation, and amortization (EBITDA). The loan term is five years at 3.2% interest (as of November, based on 3% fixed spread with the present LIBOR), with interest payments deferred for the first year, and principal payments deferred for two years.

Repayment schedule. At the end of the third year, 15% of the principal is amortized; 15% at the end of the fourth year, and a balloon payment of 70% is due at the end of the loan term. There’s no penalty for early repayment.

Debt restrictions. If you currently have debt, the amount of the loan under the program can’t exceed four times EBITDA when added to your existing outstanding and undrawn available debt. However, any Paycheck Protection Program (PPP) loans you received don’t count against your total debt as long as they’re less than $2 million.

Other considerations. Among other restrictions, you must certify that you have the ability to pay all your expenses for 90 days after the loan is issued and don’t intend to declare bankruptcy in that time; you commit to “commercially reasonable” efforts to maintain your payroll and retain your employees; and meet additional “required borrower certifications and covenants.”

The major benefits of the program are excellent loan terms and an additional source of funds in difficult times.

“While our primary focus is a year-end economic relief from Congress such as a second draw at PPP loans, restaurants need options. This program generally offers better terms than conventional commercial loans, which restaurants may not be able to get right now,” says Aaron Frazier, the Association’s director of Health Care and Tax Policy. “Three percent with LIBOR is competitive and it’s 95 percent backed by federal government.”

Some drawbacks of the program include substantial paperwork, the number of restrictions, and the Fed’s emphasis on giving healthy companies credit access if market conditions worsen.

“The Fed is exercising caution to an extreme,” says Aren Platt, executive liaison and director of special projects, La Colombe, Philadelphia, “and has placed a gate so high that it has only loaned a tiny fraction of the money authorized back in March.”

La Colombe, a coffee roaster and café operator servicing more than 5,000 hospitality clients, thought the MSLP would help it get through the roughest part of the pandemic, but didn’t qualify for a loan under the program because of its tight debt-to-EBITDA ratios.

“We sacrificed our EBITDA in order to grow the company,” Platt says. “Reinvesting our earnings was the fuel we used to build our future. But now, access to capital is very important to us to keep our business running as portions of the country implement lock-downs due to the coronavirus.”

La Colombe took action, writing a letter that’s now circulating through Congress, asking that the Fed use a 1:1 debt-to-asset ratio or loan-to-value ratio to establish creditworthiness, and allow the participation of asset-based businesses in MSLP. Platt encourages all Association members to write and call their representatives in Congress to put more pressure on the Fed to change the program requirements so more of the authorized funds flow to those who need it.

Applications for the program are available from eligible MSLP lenders. For more information, read the MSLP “For Profit” FAQs.