Shortly after this article was finalized, the Fed posted detailed FAQs on the program, available here. This article may be revised as a result.
The Main Street Lending Program, which we discussed here, applied (almost) exclusively for-profit organizations. However, on July 17, the Federal Reserve Bank of Boston officially announced expansion of that program to nonprofit organizations. Documents and systems for taking applications under the program are still being finalized, but the new Main Street loans available to nonprofits will come in two versions, new loans (Nonprofit New Loans) and expansion of an existing loan through a new tranche (Nonprofit Expanded Loans). Like other loans under the Main Street Lending Program, each has multiple standards a borrower must meet to qualify.
As with the prior programs, the new loans may only be made by “eligible lenders” registered with the Fed.1
The new loan types for nonprofit organizations under the program are intended to “support greater access to credit for nonprofit organizations such as educational institutions, hospitals, and social service organizations,” although smaller social service organizations are likely have difficulty in meeting the tests. See, for example, the financial tests in items 6 through 9 below, each of which must be met in addition to any other standards set by the lender. Of particular importance may be #6 which requires that the nonprofit’s non-donation revenues2 from 2017 through 2019 be at least 60 percent of its expenses.
Under the program, an “eligible borrower”:
Basic loan terms are, with regard to term, interest rate and payment deferrals, similar to those for loans to for-profit borrowers under the Main Street program, and potential borrowers should keep in mind that most of the general terms that apply to Main Street loans will apply here as well, including program terms are a baseline for qualification which an individual lender may expand to meet its own underwriting standards, there are limits on the uses of loan proceeds, origination and transactions fees payable by the borrower will apply, limitations on early repayment of other debt apply and the like.
New with regard to loans to nonprofits are the loan sizes: for a New Loan Facility: minimum of $250,000, maximum of (i) the lesser of $35 million, or (ii) the borrower’s average 2019 quarterly revenue; for an Extended Loan Facility, minimum of $10 million, maximum of (i) the lesser of $300 million, or (ii) the borrower’s average 2019 quarterly revenue.
For those non-profits that can navigate the eligibility requirements, this program could prove attractive.
In a nutshell, the specific loan terms are reflected in the chart provided by the Fed:
As of this writing, the Main Street SPV will cease purchasing loan participations on September 30.
1 You can check for registered lenders willing to accept applications from new customers (in addition to existing ones) for each state or territory here.
2 Under the program, “non-donation revenues” equal gross revenues minus donations; “donations” include proceeds from fundraising events, federated campaigns, gifts, donor-advised funds, and funds from similar sources, but exclude (i) government grants, (ii) revenues from a supporting organization, (iii) grants from private foundations that are disbursed over the course of more than one calendar year, and (iv) any contributions of property other than money, stocks, bonds, and other securities (noncash contributions), provided that such noncash contribution is not sold by the organization in a transaction unrelated to the organization’s tax-exempt purpose.
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