In a prior alert, we discussed the Main Street Lending Program, a $600 billion loan program funded through the CARES Act and administered by the Federal Reserve System. The Main Street Lending Program makes loans available to businesses that were in sound financial condition prior to the pandemic and are now unable to secure “adequate credit accommodations” from other banking institutions.
Unlike the Paycheck Protection Program, which allows for loan forgiveness if certain conditions are met, Main Street loans must be paid back over a five-year period with fifteen percent due at the end of year three, fifteen percent at the end of year four, and seventy percent at the end of year five. Loan sizes range from $250,000 to $300 million and are available to businesses with up to 15,000 employees or 2019 annual revenues of $5 billion or less.
While nonprofit organizations were previously excluded from participating in the Main Street Lending Program, on July 17, the Federal Reserve announced two new loan facilities that permit lending to certain nonprofits or veterans’ organizations described in sections 501(c)(3) or 501(c)(19) of the Internal Revenue Code. The Nonprofit Organization New Loan Facility (NONLF) will offer loans between $250,000 and $35 million. The Nonprofit Organization Expanded Loan Facility (NOELF) will offer loans between $10 million and $300 million. In both facilities, the maximum loan size will be capped at the borrower’s average 2019 quarterly revenue.
As we discussed previously, the Main Street Lending Program contains a myriad of certifications and covenants that must be made by participating borrowers and lenders. As evidenced by a frequently asked questions document that has now grown to eighty pages, the program is not for the faint of heart and its terms should be carefully reviewed prior to participation.
While nonprofits are subject to many of the same program rules that businesses must adhere to, there are certain additional rules that apply solely to nonprofits. These include the following:
- While businesses must have been established prior to March 13, 2020 to participate, nonprofits must have been “in continuous operation since January 1, 2015” to qualify
- There is no minimum number of employees required for businesses, however nonprofits must have at least 10 employees
- Nonprofits must have an endowment of less than $3 billion
- Nonprofits must have total non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019
- Nonprofits must have a ratio of adjusted 2019 earnings before interest, depreciation, and amortization (EBIDA) to unrestricted 2019 operating revenue, greater than or equal to 2%
- Nonprofits must have a ratio of liquid assets at the time of loan origination to average daily expenses over the previous year, equal to or greater than 60 days
- Nonprofits must have a ratio of unrestricted cash and investments to existing outstanding and undrawn available debt, plus the amount of any loan under the facility, plus the amount of any CMS Accelerated and Advance Payments, that is greater than 55%
- Nonprofits must not have participated in any other loan facility, including the municipal liquidity facility or the primary market corporate credit facility (participation in the Paycheck Protection Program is not a disqualifier)
If you operate a nonprofit and are considering applying for a Main Street loan, in addition to these specific requirements, you should review the general program rules, requirements, and restrictions that apply to nonprofits and businesses alike. Please see our prior alert or reach out to firstname.lastname@example.org if you are interested in learning more.
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