The Implications of the Main Street Program on Nonprofit Organizations

June 22, 2020 | Article

On June 15, 2020, the Federal Reserve indicated it will be seeking public feedback on a proposal to expand its Main Street Lending Program to provide access to credit for nonprofit organizations.

The existing Main Street Lending Program, which targets small and medium-sized businesses, did not apply to nonprofits. The proposed expansion would make loans available to small and medium-sized nonprofits that were in sound financial condition before the coronavirus pandemic and could now benefit from additional liquidity to help manage operations through this challenging coronavirus period. Details on the program, including term sheets for the two loan programs available to an eligible nonprofit and Frequently Asked Questions, can be found here.

Here’s what you need to know about the Main Street Lending Program.

How Would the Main Street Program Impact Nonprofits?
Loan terms for the proposed Main Street nonprofit loans are the same as for Main Street business loans with some exceptions to reflect the operational and accounting practices of the nonprofit sector.

While other forms of nonprofit organizations may be considered for inclusion at the discretion of the Federal Reserve, currently nonprofits exempt under 501(c)(3) or 501(c)(19) are generally eligible for loans under the program if they were established prior to January 1, 2015, and have been in continuous operation since being established.

In addition, eligible nonprofits must meet one of two test items:

  1. Have less than 15,001 employees
  2. Had 2019 annual revenues of $5 billion or less

Plus, nonprofits must have at least 50 employees, an endowment of less than $3 billion and had less than 30% of 2019 revenues from donations (defined as proceeds from fundraising events, federated campaigns, gifts and funds from similar sources). Financial thresholds are also in place based on operating performance, liquidity, and ability to repay debt. These requirements are the same for both new nonprofit loan programs.

Can Nonprofits Receive PPP Funding and Main Street Program Funding?
Loans from the Main Street Lending Program remain full-recourse loans, with no forgiveness provisions as are available with the Payroll Protection Program (PPP). Nonprofits that obtained a PPP loan are eligible to receive a loan under the program; however, those that received other specific support pursuant to the CARES Act are not eligible (e.g., HHS payments to hospitals).

What is the Maximum Loan a Nonprofit Can Receive Under the Main Street Program?
The maximum loan size is either $35 million or $300 million depending on the loan program. There is a minimum loan amount of $250,000 for the Nonprofit New Loan Facility and $10 million for the Nonprofit Expanded Loan Facility. Principal payments are deferred for two years, with interest being deferred for one year. The interest rate is LIBOR plus 3%. Nonprofit borrowers will be subject to the same restrictions on compensation that apply to for-profit businesses.

How do Nonprofits Apply for the Main Street Lending Program?
The ability for a nonprofit to apply for a new Main Street Lending Program loan is not currently available; the effective date of the program has not been set by the Federal Reserve. Because the circumstances, structure, and needs of nonprofit organizations vary widely, public feedback is being sought to help make the proposed program as efficient and effective as possible. Feedback may be submitted via email until Monday, June 22. Feedback will be made available to the public, and comments should not include confidential information.

Once the feedback has been evaluated and any changes considered, the Federal Reserve will announce the effective date. The delay in the effective date will allow time for nonprofits to determine the potential for making application and discussing any concerns with their advisors.

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