Federal Reserve Providing Greater Access to Credit for Nonprofit Organizations | Freed Maxick

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Overview

On Monday, June 15^th, the Federal Reserve issued a press release announcing that it will be seeking public feedback on the proposed expansion of the Main Street Lending Program to nonprofit organizations. The proposed expansion would provide loans to small and medium-sized nonprofit organizations that were in good financial condition prior to the coronavirus pandemic. As part of the press release, the Federal Reserve released a summary of the proposed terms of the loan options, as well as first drafts of term sheets for public consultation. The period to submit feedback to the Federal Reserve ran through Monday, June 22^nd.

On Friday, July 17^th, the Federal Reserve issued a press release announcing that, based on the public feedback received, certain terms and conditions for participation in the Main Street Lending Program were amended for nonprofit organizations. Updated term sheets for the two loan options that are available to eligible nonprofit organizations were also released on the Federal Reserve Bank of Boston’s website (New Loan Facility; Expanded Loan Facility).

Eligibility Requirements

Based on the guidance released this week, nonprofit organizations that were established prior to, and have been in continuous operation since, January 1, 2015, and were created or are organized in the United States with significant operations in the United States, are eligible. The nonprofit organization would also need to meet one of the following two conditions to be eligible: (a) has 15,000 employees or fewer, or (b) had 2019 annual revenues of $5 billion or less. The nonprofit organization must also have a minimum of 10 employees (previously 50) and an endowment of less than $3 billion. Financial eligibility requirements indicating the nonprofit organization was in good financial condition prior to the coronavirus pandemic include the following: (a) 2019 revenues from donations that are less than 40% (previously 30%) of total 2019 expenses, (b) a ratio of adjusted 2019 earnings before interest, depreciation, and amortization to unrestricted 2019 operating revenue that is greater than or equal to 2% (previously 5%), (c) a ratio (expressed as a number of days) of (i) liquid assets at the time of loan origination to (ii) average daily expenses over the previous year, equal to or greater than 60 days (previously 90 days), and (d) at the time of loan origination, has a ration of (i) unrestricted cash and investments to (ii) 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% (previously 65%).

Summary of Proposed Loan Options & Terms

Many of the loan terms under the proposed Main Street Lending Program nonprofit loan program are consistent with the terms of the loans offered under the Main Street Lending Program business loans. The table below, extracted from the Federal Reserve’s July 17^th press release, summarizes the proposed loan options under the nonprofit loan program.

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Conclusion

Last week’s press release from the Federal Reserve is good news for nonprofit organizations as the reduced criteria for eligibility does open the Main Street Lending Program up to a greater number of eligible participants; therefore, providing a greater access to credit for nonprofit organizations impacted by COVID-19. Forms and other documents to support Main Street Lending Programs to nonprofit organizations are currently in development and will be made available when ready (per the Federal Reserve Bank of Boston website).

Assistance and Guidance from Freed Maxick

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