News & Insights

Origins of the Main Street Lending Program (MSLP)

In April 2020, amid COVID-19 lockdowns and a freezing of credit markets, the U.S. Federal Reserve and Treasury launched the Main Street Lending Program (MSLP) under the CARES Act. This emergency facility was created via the Fed’s Section 13(3) powers to bridge a financing gap: it targeted mid-sized businesses that were too large for the Paycheck Protection Program (PPP) but too small to access bond markets or the Fed’s corporate credit facilities (federalreserve.govpymnts.com). The program officially opened in July 2020 and stopped purchasing loans by the end of 2020, when CARES Act authority expired (federalreserve.gov).

How MSLP Worked: Under MSLP, banks made new five-year term loans (or upsized existing loans) to qualifying businesses and then sold a 95% participation interest to a Federal Reserve SPV (special purpose vehicle) at par, retaining a 5% stake as “skin in the game” (federalreserve.gov). Key loan terms included deferred payments and a back-loaded amortization to ease the burden on borrowers during the pandemic’s acute phase: no principal payments for two years, no interest for one year, then 15% of principal due in years 3 and 4, and a 70% balloon payment in year 5 (federalreserve.govfa-mag.com). All loans carried a floating rate initially set at LIBOR + 300 basis points (later transitioned to SOFR + 3%) (fa-mag.com). Loans could range from $100,000 up to $300 million, depending on loan type, and businesses with up to 15,000 employees or $5 billion in 2019 revenue were eligible (federalreserve.gov). Importantly, these were not grants – unlike PPP loans, MSLP debt could not be forgiven and carried interest of approximately 300 basis points over LIBOR, reflecting higher risk (pymnts.com). Many loans were secured by blanket liens on the company’s assets and in some cases personal guarantees (fa-mag.com).

Scale and Uptake: The MSLP’s capacity was enormous on paper (up to $600 billion in loans, backstopped by $75 billion from Treasury), but actual uptake was relatively modest. By the program’s close in December 2020, MSLP had funded ~1,830 loans totaling $17.5 billion – only about 2.9% of its authorized capacity (cato.org). (For context, of the ~4,500 banks in the U.S., only ~300 participated in Main Street lending (cato.org), as many lenders and borrowers were initially hesitant.) Activity surged in the final month as borrowers and banks rushed to meet the deadline, with roughly half of all loan volume closing in December 2020 alone (federalreserve.gov). The borrowers spanned a wide range of U.S. middle-market companies: 99% of firms had under $50 million EBITDA, and top industries included restaurants/hospitality, manufacturing, real estate, and energy sectors hit hard by the pandemic (federalreserve.gov). In fact, over 70% of Main Street loan dollars went to COVID-impacted industries such as hotels, food services, and transportation (federalreserve.gov). By design, the program offered a crucial lifeline to these mid-sized employers, helping many survive the crisis when private credit was scarce.

Comparing MSLP to Other Federal Crisis Programs

The Main Street facility was one of several extraordinary interventions in 2020, each targeting different segments of the economy:

• Paycheck Protection Program (PPP): A Treasury/SBA program of forgivable loans for small businesses (generally <500 employees). PPP ultimately disbursed about $793 billion across 11.5 million loans, and over $755 billion was forgiven as grants  (pandemicoversight.govpandemicoversight.gov). PPP provided quick cash to very small firms, effectively as emergency aid. MSLP, by contrast, served larger firms with standard loans that must be repaid (pymnts.com). No forgiveness was offered under Main Street, and interest rates were higher, meaning mid-sized companies are now grappling with real debt rather than a government grant.
• Corporate Credit Facilities (PMCCF & SMCCF): Fed programs to support large investment-grade companies via bond and loan purchases. In practice these had a  strong signaling effect; usage was limited – the Primary Market Corporate Credit Facility made no direct loans, and the Secondary Market facility peaked at about $14.1 billion in bond ETF purchases (newbagehot.yale.edu) (a tiny fraction of the $750B authorized). These facilities calmed credit markets and were wound down by 2021 with virtually no losses. Unlike MSLP, they did not leave the Fed holding loans for years – once markets normalized, corporations accessed private financing and the Fed sold off its bond holdings.
• Municipal Liquidity Facility (MLF): A Fed facility for state and local governments. It completed only four loans (total $6.4 billion) – two each to the State of Illinois and New York’s MTA (transit authority) (elischolar.library.yale.edu) – to alleviate short-term funding needs. Those municipal notes were refinanced in the bond market within a year or two. Again, the scale was small and the Fed did not remain a long-term creditor.
• Main Street vs. Others: The MSLP stands out because it directly took credit risk on thousands of mid-sized businesses and held those loans on an Fed-controlled balance sheet for up to five years. In fact, Main Street ended up supporting more firms and total loan volume than any other Fed emergency credit facility in 2020, albeit still far below its potential capacity (cato.org). Unlike PPP’s effectively free money or the corporate/muni facilities that were quickly unwound, MSLP’s legacy is a large portfolio of business loans that survived the crisis – but now face repayment.

In hindsight, MSLP filled an important gap for the U.S. middle market during the pandemic. However, its structure (particularly the deferred amortization with a massive balloon) effectively pushed the toughest part of the crisis onto these businesses’ future. As we discuss next, that future moment of reckoning is arriving now.

Looming Maturities and the “Balloon” Payment Cliff

Fast-forward five years from origination: Most Main Street loans will reach final maturity in late 2025. Starting July 2025, the earliest borrowers (those who got loans in mid-2020) must repay the remaining 70% principal in one lump sum (gao.gov). This is a looming financial cliff for hundreds of companies. Even businesses that navigated the pandemic and recovered operationally now face a formidable debt wall.

Rising Debt Burden: Several factors make the 2025 balloon especially challenging:

• Bulk of Principal Due: By design, 70% of each loan’s principal was deferred to year five (federalreserve.gov). Borrowers paid only 15% in year 3 and 15% in year 4. Many firms could handle those smaller installments, but coming up with the remaining 70% all at once is another matter (gao.gov). For many, this balloon amounts to millions of dollars due in 2025.
• Higher Interest Rates: Main Street loans carry floating interest. In 2020, LIBOR was near zero, so the effective rate was ~3%. Today, with rates sharply up, borrowers are paying closer to ~8% (SOFR around 5% + 3%). Monthly interest costs have skyrocketed. For example, some borrowers who paid about $17,000 per month in interest in 2021 are now facing $80,000 per month in interest (steptoe.com). This interest spike squeezes cash flow and makes it even harder to save for the balloon payment.
• Post-COVID Industry Shifts: Many Main Street borrowers operate in sectors permanently changed by the pandemic. For instance, companies tied to office usage or business travel found that customer behavior shifted (e.g. more remote work, less commuting) (pymnts.com). Some firms never fully regained 2019 revenue levels, meaning the debt they took on is now onerous. What seemed like a reasonable leverage ratio in 2020 (often up to 4–6× EBITDA by program design (federalreserve.gov) may be unsustainable in today’s environment.

It’s therefore not surprising that analysts foresee a wave of stress and defaults among MSLP borrowers as 2025 unfolds. The Federal Reserve’s own oversight reports have noted rising delinquencies as the 15% amortization payments came due in 2023–24 (gao.gov). Now with the bulk due, many companies – even those operationally profitable – simply cannot make the required 70% balloon payment from internal cash (steptoe.com).

Current Portfolio Performance: As of late 2024, roughly half of the 1,830 Main Street loans had been fully repaid (many companies refinanced or recovered enough to pay off early) (gao.gov). But the other half – on the order of 900 loans – remained outstanding into 2025 (fa-mag.com). Credit quality is deteriorating as maturity nears:

• The Fed had recorded $1.23 billion in cumulative defaults (missed interest or principal payments) by Oct 31, 2024 (pymnts.com). By May 2025, recognized credit losses had grown to $1.42 billion (fa-mag.com). In percentage terms, that suggests roughly 8–10% of the $17.5B funded has defaulted so far.
• The Fed’s Main Street SPV has forecasted further losses as more borrowers fail to meet the big payments. In fact, by Dec 2024 the Fed projected an additional ~$624 million in losses on top of those already realized (steptoe.com). This implies a significant default wave is anticipated through late 2025.
• We are already seeing high-profile bankruptcies by Main Street borrowers. Notable examples include Starboard Group, a large Wendy’s franchisee owing $49.8 million; Coach USA, a transport company owing $37.9 million; and Corsa Coal at $16.3 million (steptoe.com). These cases underscore that even recognizable firms could not refinance or restructure in time. Observers expect many more mid-market names may follow suit absent interventions.
• Crucially, very few troubled loans have been proactively modified to avoid default. Out of 1,830 loans, only ~30 have received any modification at all – typically short-term payment deferrals – and just one loan had its maturity extended beyond the original term (steptoe.com). In other words, 95%+ of borrowers still face the same 2025 due date. The Federal Reserve Bank of Boston (which administers MSLP) has been unwilling to grant maturity extensions beyond 2026 or to forgive any principal (fa-mag.com). Interest rate reductions have also been off the table. The only concessions made have been limited tweaks like temporary deferral of interest or principal, not permanent relief (fa-mag.com. This relatively strict stance means many companies have little choice but to find new financing or default.

In sum, the Main Street program achieved its goal of tiding companies through the worst of 2020–2021. But its legacy is a debt overhang in the middle-market segment. As 2025 progresses, a significant number of these firms are expected to confront refinancing stress, restructuring negotiations, or insolvency due to the confluence of large balloon payments and higher interest costs.

What Happens Next? – Potential Outcomes and Market Impact

With the maturation of MSLP loans approaching, what comes next for these loans and the businesses behind them? Several scenarios are likely, each carrying implications for the middle-market economy and financial institutions:

• Refinancing or Restructuring Out-of-Court: Ideally, healthier borrowers will refinance their Main Street loans with new debt or equity. Some mid-sized companies are already seeking to replace MSLP debt with private credit or bank loans, spreading the 70% balloon over a new term. However, refinancing is challenging in the current high-rate environment, especially for borrowers whose financials remain strained. Credit conditions for sub-investment-grade middle market firms are tighter now than in 2020. Lenders are cautious, and new debt will come at high interest rates (likely even higher than the MSLP’s SOFR+3%). Many firms will not find affordable refinancing, or will require their owners to inject capital (or bring in a new equity investor) to facilitate a deal. Out-of-court restructurings – e.g. extending the loan with consent of the Fed SPV and bank, or taking on mezzanine financing – are an option in theory. But as noted, the Fed’s SPV has set strict limits on modifications (no maturity beyond 2025[1], no principal write-down) (fa-mag.com), which severely constrain consensual workouts. Thus, while a few strong companies will refinance successfully, a large portion may not resolve their debt outside of bankruptcy without some flexibility from the lenders.
• Default and Bankruptcy: If a borrower cannot pay the balloon or refinance, and the Fed SPV will not extend terms, the likely outcome is default, followed by either a negotiated restructuring or a bankruptcy filing. Indeed, a “wave of defaults” is expected in 2025 (steptoe.com), and some borrowers have already concluded that Chapter 11 bankruptcy is their clearest path. Bankruptcy would allow a company to potentially discharge or restructure the MSLP debt (subject to the court and creditors) and continue operating. However, bankruptcies are costly and complex, and the Fed (as a 95% lender via the SPV) is in an unusual position as a major creditor. Notably, the Boston Fed has provided little formal guidance on handling MSLP loan defaults or bankruptcies (steptoe.com), leaving stakeholders uncertain how aggressive the Fed will be in enforcement or what its workout strategy is. This uncertainty itself can push borrowers toward court, since negotiating informally with a quasi-government lender is uncharted territory. We are likely to witness many middle-market Chapter 11 cases where Main Street loans are a central issue, potentially testing the Fed’s tolerance for taking losses or converting debt to equity in reorganizations. The credit losses to the Fed/Treasury could climb significantly if defaults cascade – though the CARES Act equity ($75B from Treasury) was meant to absorb such losses, in practice much of that unused equity has been returned to Treasury as loans repaid (bostonfed.orgbostonfed.org). As of May 2025, Treasury’s remaining stake in the Main Street SPV was only $2.0 billion (down from $75 billion), reflecting that most loans repaid and the Fed remitted excess funds back (bostonfed.org). This means the cushion for future losses is smaller, and any large wave of defaults will either eat into that last $2B of Treasury equity or potentially into Fed capital.
• Loan Sales to Third Parties: One emerging avenue is the sale of Main Street loans on the secondary market. The Fed’s SPV has indicated that it will permit loan sales to third-party investors as a way to resolve distressed situations (steptoe.com). In such a scenario, an investor (for example, a distressed debt fund or another bank) buys the 95% Fed participation (and possibly the bank’s 5% as well) at a negotiated price, and then takes over the credit, free to restructure it more flexibly. This could be a win-win in cases where the Fed/Treasury prefer not to be involved in a protracted workout, and an investor is willing to step in. However, the Fed has set conditions: it will approve a loan sale only if the borrower and servicing bank demonstrate that the sale is better than the borrower’s liquidation, and that a fair market value price is paid (often requiring an auction process to solicit bids) (fa-mag.com). There is a risk from the borrower’s perspective that their preferred buyer (perhaps a friendly investor who will ease terms) might be outbid by a more hard-nosed distressed buyer (fa-mag.com). Once sold, the new creditor could take a much tougher line (since they likely bought the loan at a discount and seek high returns) (fa-mag.com). Despite these risks, distressed-debt investors see opportunity: by mid-2025, many specialized funds are actively evaluating MSLP loans to purchase at a discount, betting they can either restructure the debt or convert it to equity in a turnaround. Indeed, the situation is drawing comparisons to past credit crises where vulture investors scooped up troubled loan portfolios.
• Bulk Sale of the Entire Portfolio: A broader concept that has been floated is whether a large institution might buy the Fed’s entire MSLP loan portfolio (or a major portion of it) at a discount. Such a bulk transfer would effectively move the credit risk from the government back to the private sector in one sweep. It could appeal to the Fed/Treasury as a way to quickly exit the business of mid-market lending, especially if managing hundreds of workouts is onerous for a central bank. And for a savvy investor (a big private equity firm, asset manager, or consortium), acquiring ~$7–8 billion of loans at a discount could yield profits if they can recover more than the purchase price over time. However, there are significant hurdles. First, the Fed would likely only entertain a sale if the discount was not too deep – officials have shown little interest in “fire sales,” preferring to pursue traditional restructurings if those promise better recovery (fa-mag.com). In other words, if investors demand a steep discount reflecting worst-case defaults, the Fed may opt to hold loans to maturity and work them out case-by-case rather than lock in a large loss upfront. Secondly, any purchaser would need to navigate political and reputational angles – profiting off a government crisis program might draw scrutiny, especially if borrowers later complain about harsh treatment. To date, no bulk sale has been announced. The Fed appears content to gradually unwind the portfolio: it has been steadily returning unused equity to Treasury as loans repay (with Treasury’s stake to be pared to $1B or less) (bostonfed.org), and it is likely hoping that many remaining firms will find private refinancing or restructuring solutions. A one-shot portfolio sale remains possible if conditions deteriorate, but it would require balancing the taxpayer’s interest (maximizing sale value) against the buyer’s need for a bargain. It’s a delicate proposition.

In summary, the next 12–18 months will see the Main Street portfolio either gradually run off via refinancings and repayments – or more dramatically hit the market via defaults and loan sales. From a macro perspective, this could put stress on the middle market segment of the economy. Mid-sized firms account for a huge number of U.S. jobs, and if many stumble at once, there could be ripple effects on employment and local communities. On the other hand, the resolution of these loans will also unlock opportunities for investors and financial institutions to step in with capital and advisory services, as we explore next.

How Investment Banks and Advisors Can Help

As the Main Street Lending Program era comes to a close, a wide array of financial advisory and investment opportunities are emerging. Middle-market companies will need guidance and capital, and the Fed and Treasury may seek efficient ways to unwind the program’s exposures. Investment banks (IBs) – especially those experienced in mid-market finance, M&A, and restructuring – are poised to play a crucial role. Key areas where an investment bank can add value include:

• Debt Refinancing & Placement: Companies with impending MSLP maturities will be urgently seeking new financing to replace or reduce those loans. An investment bank can assist borrowers in raising fresh debt – whether through bank syndicates, direct lenders (private credit funds), or capital markets – to refinance the balloon. This may involve arranging term loan B facilities, unitranche and split lien loans from private credit, or even high-yield bonds for the larger issuers. Creative structuring will be needed, such as mezzanine financing or asset-based loans, given many borrowers’ leverage is high and collateral already pledged. Lenders will price in the current higher-rate environment and the firms’ improved (or weakened) post-pandemic performance. An IB can help position the company’s story to creditors, highlight its recovery trajectory, and potentially arrange credit enhancements (for example, securing the loan with additional collateral or sponsor support) to get the deal done. For companies that can support it, refinancing converts the unmanageable lump-sum due in 2025 into amortizing debt or longer maturities, thus avoiding default.
• M&A Advisory and Equity Capital: In some cases, the best outcome may be a sale of the company or an equity recapitalization. Owners of a distressed mid-market firm might decide to sell the business outright to a strategic buyer or private equity investor, using the proceeds to pay off the Main Street loan. Alternatively, a company could bring in a new equity sponsor or minority investor, with the infusion earmarked to substantially pay down debt. Investment banks can facilitate these solutions by running M&A processes: identifying potential acquirers or investors, marketing the company (or its assets) despite the debt overhang, and negotiating transactions that maximize value. For example, if a healthy competitor or private equity fund sees long-term value in a firm hamstrung by its MSLP loan, an IB can orchestrate a deal where that investor buys the company (possibly at a discounted valuation given the debt load) and either refinances or negotiates the debt post-acquisition. Such M&A deals can be complex – they may require consent from the Fed SPV or bankruptcy court if done through a court process – but a savvy advisor can navigate these hurdles. The result can be a win-win: the borrower’s business survives under new ownership with a right-sized balance sheet, and the lender (Fed) gets repaid, at least in part, without a protracted workout.
• Restructuring & Special Situations Advisory: For companies that cannot avoid a default, investment banks (often via dedicated Restructuring or Special Situations teams) can advise both the companies and stakeholders through the process. This might involve developing a restructuring plan (either out-of-court or Chapter 11) that offers the Fed SPV and bank a realistic recovery while giving the company a viable path forward. IB advisors can help negotiate with the Fed’s representatives and other creditors, something many management teams have never done on their own. Additionally, if the Fed SPV agrees to allow a loan sale, an investment banker could assist the borrower in finding a suitable buyer for its debt, effectively brokering a deal between the Fed/bank and a private investor. This requires running a targeted process to ensure the price meets the Fed’s “fair value” requirement (fa-mag.com) while also identifying an investor likely to be a constructive partner to the business post-sale. On the flip side, IBs can represent creditors or investors looking at Main Street loan opportunities – performing due diligence on loan portfolios, estimating recoveries, and strategizing bids for those loans or for equity in reorganizations. In essence, the advisory role spans the whole spectrum of special situations: from liability management exercises (debt exchanges, modifications) to DIP financing in bankruptcies to orchestrating pre-packaged bankruptcy plans where a new investor comes in and old debt is swapped for equity. Given the Fed’s constraints (no principal forgiveness, firm 2025–26 exit timeline (fa-mag.com), creative solutions will be needed to fill the gap – exactly the kind of challenge restructuring professionals thrive on.
• Portfolio Sale Facilitation: In the event that policymakers seriously consider a bulk sale of the MSLP portfolio, investment banks could act as intermediaries to make it happen. For instance, an IB could help assemble a consortium of large investors to bid on the whole loan pool, conduct the valuation of hundreds of individual loans, and structure the transaction (perhaps with tranching, where the most risky loans are priced separately from healthier ones). While the Fed to date has been reluctant to sell at a steep discount (fa-mag.com), an investment bank could bridge the gap by finding a pricing and structure that satisfies both sides – for example, a slight discount plus upside sharing if recoveries turn out better than expected. The IB’s role would be to ensure due diligence is done quickly and to mitigate any perception of impropriety by running a fair process. Should such a mega-deal occur, it would be reminiscent of transactions after the 2008–09 crisis (like pools of TARP assets or distressed loans sold by the FDIC), and a reputable Wall Street firm would likely be called upon to advise the government on the sale. Our firm’s experience in both loan markets and government transactions would be highly relevant in this scenario.

Conclusion: A New Chapter for Main Street and Middle Market Finance

The Main Street Lending Program was born as an emergency lifeline, and it largely succeeded in stabilizing mid-sized businesses during one of the economy’s darkest times (pymnts.com). Now, five years later, that lifeline is turning into a test of resilience for the same businesses. The looming 2025 maturities present a significant challenge for the U.S. middle market – a test of whether these companies can stand on their own, refinance, or restructure now that the government support era has ended. In many ways, this is a pivotal moment for the middle market: the decisions made in the next year (by company owners, lenders, and policymakers) will determine which firms emerge healthy and which succumb to debt burdens.

There are also broader implications for credit markets. The MSLP experience highlights the difficulty of designing rescue programs that truly “graduate” back to private financing. Small businesses got forgivable PPP loans and largely moved on; big corporations had direct market access and didn’t rely long-term on the Fed. But mid-sized companies ended up with permanent loans from a temporary facility. That tension is now playing out. From a public policy standpoint, there may be lessons in whether future programs should avoid large bullet payments or variable rates that can squeeze borrowers post-crisis. For example, had the MSLP loans amortized more evenly or had some forgiveness element, fewer companies might be in distress today – but of course that would have shifted more cost to taxpayers. These trade-offs will be debated in hindsight.

For now, our focus is on solutions. Investment banks like ours have a key role to play as navigators in this transition. We stand ready to assist companies in devising and executing strategies – whether that means raising replacement debt, finding an equity partner, selling the business, or restructuring the balance sheet to survive and thrive. We are also prepared to help investors deploy capital into these situations, and to help the government unwind the program in a way that minimizes disruption.

At Harney Capital and our affiliate Harney Partners, we offer a uniquely integrated solution for middle market borrowers and stakeholders navigating the MSLP endgame. Harney Capital provides deep expertise in debt placement, M&A advisory, and special situations. Harney Partners brings decades of experience in financial restructuring, operational turnaround, and crisis management. Together, we help clients bridge the gap between distressed conditions and long-term value creation. Whether you’re a borrower facing a maturity cliff, a lender managing exposure, or an investor evaluating opportunities, our team can provide the judgment, relationships, and execution needed to succeed.

As the Main Street Lending Program reaches its final chapter, we aim to ensure it transitions into a success story for as many businesses as possible. By bringing the full toolkit of capital markets strategy, restructuring capability, and transaction execution, Harney Capital and Harney Partners can turn a looming crisis into an opportunity—stabilizing middle-market companies, unlocking value for investors, and sustaining the recovery of America’s Main Street.

For more information on how Harney Partners can help from a turnaround or restructuring perspective, contact Harney Partners contributing authors Lou Natale or Tom Hidder.

Sources:

• Federal Reserve Board, Main Street Lending Program – Program Terms and Updates federalreserve.govfederalreserve.govfederalreserve.gov
• Federal Reserve and GAO Reports on MSLP Loan Performance (2024) gao.govgao.govcato.org
• Steptoe Client Alert, “Wave of Defaults Expected as MSLP Loans Come Due” (Feb 2025) steptoe.comsteptoe.com
• PYMNTS/Bloomberg, Pandemic’s Main Street Lending Program Borrowers Still Struggle (Nov 2024) pymnts.compymnts.com
• Financial Advisor Magazine, “Default Wave Looming on Fed-Supported Loans” (June 2025) fa-mag.comfa-mag.comfa-mag.com
• Federal Reserve Bank of Boston, MSLP Updates (2023–2025) bostonfed.org (Treasury equity repayments)
• New Bagehot Project (Yale), data on Fed Corporate Credit Facilities (2020) newbagehot.yale.edu (for comparison)
• U.S. Pandemic Response Oversight, PPP Loan Forgiveness Fact Sheet (Oct 2022) pandemicoversight.govpandemicoversight.gov (for comparison)

[1] The program’s loans were expressly designed to mature in 2025, and no extensions beyond that have been granted. Financial Advisor Magazine reports that although the SPV will consider limited loan modifications (deferred principal or interest), it has “categorically refused to extend maturity dates beyond 2026 or reduce interest rates, and principal forgiveness is not permitted.”  This reference to 2026 likely pertains to the absolute statutory cap—not an actual programmatic extension.  NatLawReview and Hunton Andrews Kurth confirm that “MSLP does not permit loan modifications that extend the five-year maturity date.”

The inconsistency stems from how different commentators reference “maturity extensions.” The legal maximum term under the CARES Act, including for certain categories like airlines, technically could allow up to five years. But in practice, no borrower has received an extension past the original five-year window, which ends in 2025.