Main Street Lending Program now extended to nonprofits
On July 17, the U.S. Treasury authorized the Federal Reserve to extend the Main Street Lending Program to nonprofit organizations, such as hospitals, universities and social service groups.
Nonprofits can now take advantage of two of the program’s three loan channels: new loans, which can stretch from $250,000 to a maximum of $35 million or the borrower’s average quarterly revenue in 2019 (whichever is less); and expanded loans, which can be between $10 million and $300 million (or, again, average quarterly revenue.)
Additionally, the Fed relaxed some of the criteria initially proposed for including nonprofits. The announcement stated that organizations with as few as 10 employees can apply – the previous proposed limit was 50.
Nonprofits must have been in operation for five years, have less than $3 billion in endowment and have a minimum of 60 days' cash on hand. They also must have had a 2% operating margin in 2019, a reduction from 5% in the initial proposal. Finally, eligibility means non-donation revenue must have accounted for 60% or more of expenses from 2017 to 2019, a reduction from the 70% proposed in June.
Five-year loans carry an interest rate of 3 percentage points above LIBOR. Interest is deferred for one year; principal payments, for two years.
The July 17 announcement was expected. In June, the Fed said it was working on an expansion to include nonprofits and sought comments. The Main Street Lending Program’s loan terms were a major stumbling block at inter-governmental agency level, as disagreements between the Fed and Treasury led to a long delay in Main Street's rollout. The Fed wanted easier terms that would increase the risk of the government losing money, while Treasury officials skewed more conservatively.
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