On July 17, 2020, the Federal Reserve (Fed) finalized details for two new Main Street loan programs created for not-for-profits (NFP): Nonprofit Organization New Loan Facility and Nonprofit Organization Expanded Loan Facility.
Lenders will assess NFPs for a Main Street loan based on meeting the program terms and the lenders’ own underwriting standards. Lenders’ loan approvals are contingent on those factors.
NFPs that have received Paycheck Protection Program (PPP) loans are eligible for Main Street loans, if all other program requirements are met.
Here are some of the main points of these new loan programs. Additional information is available on the Federal Reserve Board’s website.
Eligibility
An eligible NFP must be a tax-exempt 501(c)(3) or a 501(c)(19) organization and meet the following criteria:
- Established prior to, and in continuous operation since, January 1, 2015
- Meets at least one of the following two conditions:
- 15,000 employees or fewer
- 2019 annual revenues of $5 billion or less
- At least 10 employees
- Endowment of less than $3 billion
- Total nondonation revenues equal to or greater than 60 percent of expenses for the period from 2017 to 2019
- Has a ratio of adjusted 2019 earnings before interest, depreciation, and amortization (EBIDA) to unrestricted 2019 operating revenue, greater than or equal to 2 percent
- The ratio (in number of days) of liquid assets at loan origination to average daily expenses over the previous year, equal to or greater than 60 days.
- The ratio of unrestricted cash and investments to existing outstanding and undrawn available debt, plus any Main Street loan, plus the amount of any CMS Accelerated and Advance Payments, is greater than 55 percent at loan origination
- Created or organized in the U.S. or under the laws of the U.S. with significant operations in and a majority of its employees based in the United States
- Does not also participate in other Federal Reserve liquidity facilities
- No other specific support from the CARES Act (does not include PPP loans)
Certifications & Restrictions
The the NFP Main Street loan programs, there are restrictions on executive compensation, conflicts of interest and employee retention.
Executive Compensation
Borrowers are prohibited from increasing compensation of any officer or employee whose total compensation exceeds $425,000, or from offering these employees severance pay or other benefits upon termination of employment, that exceeds twice the maximum total annual compensation received by that employee, until one year after the loan has been paid back.
Conflicts of Interest
Borrowers may not benefit from a Main Street loan if the NFP’s management includes the president, vice president, executive department head, member of Congress, or any of such individual’s spouse, child, son-in-law, or daughter-in-law.
Employee Retention
NFPs should make reasonable efforts to maintain their payroll and retain their employees during the term of the Main Street loan.
Borrower Certifications
The following certifications and covenants will be required from borrowers:
- Refrain from repaying the principal balance of—or paying any interest on—any debt until the Main Street loan is fully repaid, unless the debt or interest payment is mandatory and due.
- The NFP must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Main Street lender or any other lender.
- Reasonable basis to believe that, as of the loan date, it can meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
We are following this topic closely and will provide additional details as they become available. Please review additional information on the Federal Reserve Board website and contact your HW Nonprofit advisor with any questions you may have.
