On Friday, July 17, 2020, the Federal Reserve Board announced the expansion of the Main Street Lending Program to provide greater access for not-for-profit organizations such as educational institutions, hospitals, and social service organizations.
Specifically, the board approved two new loan options to help not-for-profits that were in sound financial condition before the COVID-19 pandemic struck. In addition, the board eased the requirements for not-for-profits to participate in the Main Street Lending Program.
In order to partake in the Main Street program, the not-for-profit must be a tax-exempt organization as described in Sec. 501(c)(3) or 501(c)(19) of the Internal Revenue Code (IRC). They must also meet the following criteria:
- Minimum employees 10 (previously 50)
- Total nondonation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019 (previously 70%)
- 2019 operating margin of 2% or more (previously 5%)
- Current cash on hand 60 days (previously 90 days)
- Current debt repayment capacity – ratio of cash, investments, and other resources to outstanding debt and certain other liabilities – of greater than 55% (previously 65%)
The Main Street not-for-profit loan terms generally reflect those for Main Street for-profit business loans, including:
- Interest rate (LIBOR + 3%)
- Principal and interest payment deferral (principal deferred for two years; years 3-5: 15%, 15%, and 70%)
- Five-year term
- Minimum and maximum loan sizes
Not-for-profit organizations are eligible for two different loan options:
The following chart, courtesy of the Federal Reserve Board, includes the details and differences between the two nonprofit organization loan facilities:
Is a Main Street loan a good option for my organization?
The expansion of the Main Street Lending Programs for not-for-profit organizations opens up additional liquidity for organizations significantly affected by COVID-19.
To determine whether or not a Main Street Loan is a feasible and practical option for your organization, we suggest you forecast your cash flow needs over an extended time period and analyze the term sheets to determine the loan facility best aligned with your operational strategy and risk profile.
Furthermore, you should consider your potential loan amount under each facility and whether or not you can (or would be willing to) provide any requisite collateral.
In addition, you should carefully consider the required covenants and restrictions of the loans to ensure that you stay in compliance.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.
Our Not-For-Profit Services
We have a team of professionals with extensive experience serving not-for-profit organizations. Our professionals understand that each not-for-profit organization is unique. Our goal is to provide you with timely and cost-efficient services tailored to your needs.