Once the full impact of the coronavirus pandemic was realized, and sheltering in place became one of the best defenses against its spread, it became obvious that the economy was going to face significant obstacles.

One form of relief came on March 27, 2020 when the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). This a relief package of nearly $2 trillion includes loans to business owners with the goal of delivering short- to medium term cash liquidity to minimize some of the slow-down in national credit markets.

Much of the publicity has been focused on the Families First Coronavirus Response Act and the Paycheck Protection Program loan programs for small businesses which is administered by the U.S. Small Business Administration (“SBA”).

But it is also important to note that as part of that effort, the Treasury Secretary has also been instructed to implement a program or facility that provides financing to banks and other lenders to make direct loans to mid-sized businesses and nonprofit organizations with between 500 and 10,000 employees.

Unlike the CARES Act’s SBA loan program which quickly went into effect, this Treasury program for mid-sized businesses is not yet operational.

Here are some of the so far unanswered questions that should be addressed shortly:

  • The amount that will be available for loans to mid-sized businesses.
  • The minimum or maximum size of a loan or loan guarantee.
  • The maximum loan term.

What we do know so far:

  • The maximum interest rate for mid-sized business loans is capped at 2% per annum.
  • A loan under this program will include postponement of all principal and interest payments for at least six months (or for a longer period as the Treasury Secretary may decide).
  • For a loan or loan guarantee to be issued, there may be loan collateralization requirements, taxpayer protections and borrower solvency requirements.

The loans made under this program will include a list of specific requirements and restrictions which will be reviewed once the program takes effect.

Some of the key guidelines indicate that the recipient must be a U.S.-organized entity, domiciled in the United States, with significant operations and a majority of its employees located in the United States and the loan request must be necessary to support the recipient’s ongoing operations because of the uncertainty of current economic conditions and that the funds received will be used to retain at least 90% of the recipient’s workforce, at full compensation and benefits, until September 30, 2020.

Other restrictions apply regarding use of loan, prior debt of the borrower, payment of dividends or purchasing of stock as well as details on several additional limitations including hiring off shore employees.

While there is still much to be explained regarding the loan for mid-size businesses, for those who have between 500-10,000 employees, this loan may provide an opportunity for improving cash flow during the current crisis.