Last week, the Federal Reserve announced that not-for-profit organizations now may apply for loans under the $600 billion Main Street Lending Program. Previously open only to for-profit businesses with more than 100 employees, the program offers low-interest loans with relatively relaxed repayment terms. If your organization needs funding to keep operating during this difficult period, a Main Street loan may be an option.

The Basics

Initially, the Main Street program offered loans through three credit facilities but has added two more specifically for nonprofits: Nonprofit Organization New Loan Facility and Nonprofit Expanded Loan Facility. The difference between the two is that the Expanded Facility makes larger loans to qualified applicants, such as universities and hospitals.

Eligible banks accept applications and extend loans, but the Fed takes a 95% stake in them. Like the Paycheck Protection Act, Main Street is funded in part by CARES Act funds. It is designed to help keep organizations operating and able to retain and hire employees.

Rules for applicants

To qualify for a Main Street loan, nonprofit organizations must be tax exempt and have:

• A minimum of 10 employees,
• Been in operation for at least five years,
• Less than a $3 billion endowment,
• Total non-donation revenues equal to 60% of expenses or more, 2017 through 2019,
• 2019 operating margin of 2% or more,
• Cash on hand for 60 days,
• A debt repayment capacity of greater than 55%.

Loans have a five-year term and interest rate of LIBOR plus 3%. Interest payments are deferred for one year. Loan size depends, of course, on the size and financial health of your nonprofit, but amounts generally run from $250,000 to $300 million.

Right for you?

Even if your nonprofit has never taken out a loan, it may be necessary now during the COVID-19 crisis. But you’ll need to think carefully about your nonprofit’s ability to repay any loan. 

© 2020