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Federal Reserve Expands Main Street Lending Program for Nonprofits

UPDATE: On July 28, 2020 the Federal Reserve Board announced an extension through December 31 of its lending facilities that were scheduled to expire on or around September 30, which includes the Main Street Lending Program.

On June 15, 2020 the Federal Reserve expanded access for certain nonprofit organizations to its Main Street Lending Program (MSLP). The program is targeted toward small and medium-sized nonprofits (those with 15,000 or fewer employees or 2019 revenues of $5 billion or less) and recognizes the critical role that nonprofit organizations play in the economy, particularly during this time when many are facing heightened demand for their services. 

This program is particularly attractive to borrowers because its five-year loans defer interest for the first year and principal payments for the first two years of the term of the loan. The remaining principal balance is payable 15 percent at the end of year three, another 15 percent at the end of year four and the remaining 70 percent balance due at the end of year five. Within this program, there are two separate types of loan facilities available to qualifying nonprofits. One pertains to entirely new loans (Nonprofit Organization New Loan Facility or NONLF). NONLF loans are available in a minimum loan size of $250,000 and a maximum of the lesser of (1) $35 million or (2) the borrower's average 2019 quarterly revenue. The second loan facility is an expansion of existing loans that have been originated before June 15, 2020 and have a remaining maturity of at least 18 months (Nonprofit Organization Expanded Loan Facility or NOELF). NOELF loans are offered in a minimum size of $10 million and a maximum of the lesser of (1) $300 million or (2) the borrower's average 2019 quarterly revenue. In either case, the loan may not be subordinated to any other debt of the borrower. Interest rates are set at LIBOR plus three percent, the same rate established for loans to business borrowers under the MSLP.

Eligibility for these loans is limited to organizations formed in the United States and recognized as tax exempt under IRC §501(c)(3) (i.e., charitable, educational, religious, scientific, literary or testing for public safety) or IRC §501(c)(19) organizations (i.e., veterans organizations). Additional borrower eligibility criteria include:

  • Must have been in continuous operation since January 1, 2015

  • Minimum of 10 employees

  • Endowments of less than $3 billion

  • Total non-donation revenues equal to or greater than 60 percent of expenses for the three-year period 2017-2019

  • 2019 operating margin (ratio of adjusted EBIDA to unrestricted operating revenue) of at least two percent

  • Minimum of 60 days' current cash on hand

  • Ratio of liquid assets (cash and investments) to outstanding debt of greater than 55 percent

In addition, applicants must have significant operations and a majority of its employees in the United States. Certain certifications and covenants are also required.

Unlike Paycheck Protection Program loans, there is no loan forgiveness component to the MSLP. These are full recourse loans. However, the two programs have similar policy goals in that borrowers under the MSLP are required to exercise commercially reasonable efforts to maintain payroll and retain employees. 

© 2020 Varnum LLPNational Law Review, Volume X, Number 212


About this Author

Seth W. Ashby, Varnum Law Firm, Grand Rapids, Corporate Planning Attorney, Private Equity Lawyer

Seth is a partner and member of the firm’s Business and Corporate Services Team. He is experienced in business representation, planning and counseling. He focuses on mergers and acquisitions, as well as private equity, securities, distressed asset and restructuring, and commercial transactions. Seth also advises clients with respect to corporate governance, regulatory and other general corporate matters.

Dale R. Rietberg, corporate attorney, Varnum

Dale has extensive experience in the area of nonprofit and tax exempt entities, and works with a wide range of exempt organizations, including charities, social service agencies, cultural and civic institutions, educational organizations, foundations, health organizations, clubs and associations, and religious organizations.

His work includes advising on such topics as exemption applications; unrelated business taxable income (UBTI); permissible political and lobbying activities; governance disputes; drafting and revising bylaws and other corporate policies; protection and licensing of intellectual property; director and officer liability protections; drafting of waivers, releases and consents; special rules pertaining to supporting organizations; excess benefit transactions and the intermediate sanctions rules; issues of private inurement and private benefit; loss and reactivation of corporate and/or tax exempt status; and special rules applicable to private foundations (e.g., self-dealing transactions, jeopardizing investments, excess business holdings and taxable expenditures).