Recently, the Federal Reserve announced a major change to the Main Street Lending Program, which is worth $600 Billion. Before the COVID-19 pandemic, only for-profit businesses with more than 100 employees could benefit from this government capital program. However, the Fed is now accepting applications from nonprofits. This type of loan is beneficial because they have low interest rates and flexible repayment terms. Like most lending programs, this one requires demonstrated ability to repay the money. For that reason, your company should be willing to turn over many of the same records required for a California nonprofit audit. Through the Main Street Lending Program, your nonprofit may be able to get the funding it needs to keep operating during these challenging times.
Originally, the Main Street program had three different types of loans available. However, they have added two more options tailored to nonprofits. These are called the Nonprofit Organization New Loan Facility and the Nonprofit Expanded Loan Facility. Specifically, the New Loan Facility makes small loans that are tailored to smaller nonprofits. In contrast, the Expanded Facility has higher credit requirements and is intended to make large loans to big nonprofits like colleges and healthcare facilities.
Like other government-backed loan programs, these are issued through specially designated banks who will review applications and financial information. Unlike other programs, the Fed retains a 95% ownership stake in these credit facilities. Also, like Paycheck Protection Act loans, this program is funded partially through the CARES act. Main Street loans are designed to keep your nonprofit operating without having to lay off employees or forego critical hiring. s.
Applicant qualification criteria
Nonprofit organizations hoping to qualify for a Main Street loan must demonstrate tax exempt status. They’re also subject to the following requirements:
- Employ at least 10 people,
- In business for a minimum of five years,
- Have an endowment of less than $3 billion,
- Donations must make up no more than 40% of operating expenses between 2017 and 2019,
- In 2019 there must have been at least a 2% operating margin,
- Must have at least 60 days of cash available,
- Debt repayment capacity of more than 55%.
Main Street Lending Program loans are repaid over five years at a variable interest rate of LIBOR plus 3%. Also, the Fed defers interest payments for a year. Actual loan size always depends on your nonprofit’s needs and credit rating. Typically, loan amounts range from $250,000 to $300 million.
Are they appropriate for your nonprofit?
Many nonprofits never take out loans, or do so rarely. However, the COVID-19 crisis has created unprecedented economic conditions, and your Board may need to think creatively to get the money your organization needs. Keep in mind that unlike PPP loans, Main Street loans do not have an automatic discharge option, so you need to ensure the loan can be repaid. Therefore, it’s best to think carefully about other options, when possible.
Be prepared for your next audit and download our Nonprofit Audit Guide.