Federal Reserve Contemplates Main Street Lending Program Eligibility for Nonprofit Organizations
June 25, 2020
On June 15, 2020, the Federal Reserve announced expanding the Main Street Lending Program (MSLP) for nonprofit organizations that are tax-exempt under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code. In the press release, the Federal Reserve announced it is seeking public comment on a proposal to offer small- and medium-sized nonprofit organizations with two loan options: the Nonprofit New Loans ($250,000 to $35 million) and the Nonprofit Expanded Loans ($10 million to $300 million).
Borrower eligibility requirements for the proposed nonprofit facilities would be modified from the for-profit facilities to reflect the operational and accounting practices of the nonprofit sector. The requirements include:
- A minimum of 50 and maximum of 15,000 employees;
- Financial thresholds based on operating performance, liquidity and ability to repay debt;
- An operational history of at least five years; and
- A limit on endowments of no more than $3 billion.
About MSLP for Nonprofit Organizations
The Federal Reserve established the Main Street Lending Program to provide crucial financial assistance to small- and medium-sized companies, including nonprofit organizations, affected by the coronavirus pandemic, particularly targeting entities that were too small to access the capital markets necessary to receive help through the Paycheck Protection Program. MSLP has established two different loan types for eligible nonprofit organizations. Each loan boasts a different maximum loan size, but each provides a five-year, low-cost lifeline with deferred principal repayments for two years and interest payments deferred for the first year.
Below is a summary of the proposed lending program.
| For Nonprofits | ||
|---|---|---|
| Proposed Main Street Lending Program Nonprofit Loan Options | Nonprofit New Loans | Nonprofit Expanded Loans |
| Term | 5 year | |
| Minimum Loan Size | $250,000 | $10M |
| Endowment Cap | $3 billion | |
| Years in Operation | At least 5 years | |
| Employee Min/Max | Employees fewer than 15,000 and greater than 50 | |
| Revenue cap and source requirement | 2019 Revenues less than $5 billion, with less than 30% sourced from donations | |
| Maximum Loan Size | The lesser of $35M, or the borrower’s average 2019 quarterly revenue | The lesser of $300M, or the borrower’s average 2019 quarterly revenue |
| Risk Retention | 5% | |
| Principal Repayment | Principal deferred for two years; years 3-5: 15%, 15%, 70% | |
| Interest Payments | Deferred for one year | |
| Rate | LIBOR + 3% | |
|
Note – Information hereon is based on draft term sheets issued by Federal Reserve on June 15, 2020. Aprio will continue to monitor announcements from Federal Reserve and will update terms as amendments and changes are announced. |
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The Bottom Line
Aprio’s advisors are monitoring all new information from the Federal Reserve and are providing up-to-date guidance to clients related to additional provisions and considerations related to the Main Street Lending Program. If you think your nonprofit organization may be eligible for the Main Street Loan Program or may be impacted by the recent changes, contact Michael Levy or Bill Dupee.
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About the Author
Mitchell Kopelman
National Leader in Aprio’s Technology Practice, and Tax Partner, Mitchell works with SaaS companies in FinTech, HealthTech, Transaction Processing, Blockchain and Gaming. Whether a company is pre-revenue, starting up, growing, or preparing for a liquidity event, Mitchell works with them to maximize their potential at each stage. He is known for promoting research, innovation and entrepreneurship by enabling companies to be successful, regardless of where they are in their business lifecycle.
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