Mary Kay Curtiss | August 27, 2020
The Main Street Lending Program was created by the CARES Act in April and officially launched on June 22. The $600 billion lending initiative was designed to provide financial relief to assist “midsized companies” (more specifically: companies with 15,000 or fewer employees) that had been impacted by the COVID-19 public health crisis.
Originally, non-profit organizations were not able to participate in the Main Street Lending Program. That changed in mid-July.
In an effort to support the non-profit industry, which provides essential services and employs millions of people across the country, the Federal Reserve Board modified the Main Street Lending program on Friday, July 17, by approving two new loan options for qualifying non-profit organizations including hospitals, social service organizations, and educational institutions in “sound financial condition” prior to the pandemic. This modification was approved by U.S. Treasury Secretary, Steven Mnuchin.
To be eligible for funding through the Main Street Lending Program, a non-profit must be a tax-exempt organization as defined in the Internal Revenue Code sections 501(c)(3) or 501 (c)(19). Changes in minimum threshold for employees moved from 50 to 10 employees, donation-based funding limits were eased, and adjustments were made to several of the financial eligibility criteria. These changes will allow a greater range of non-profit entities to take advantage of the program.
Staying the same are the loan terms for non-profits, which will replicate the loan terms for for-profit businesses, including minimum and maximum loan sizes, terms, interest rates, and principal and interest rate deferrals.
In addition to being in “sound financial condition” prior to the COVID-19 pandemic, non-profits applying for these funds must have at least 10 employees, have been in operation for a minimum of five years and have no more than $3 billion in any endowment. The organization must borrow a minimum of $250,000, cannot be overleveraged, and the ratio of cash, investments and other resources to debt must be greater than 55%.
Non-profits may be eligible for two loan options; the details of those loan options are outlined in the following chart. Interest payments may be deferred for one year and the principal can be deferred for two years.
| Main Street Lending Program Non-profit Loan Options | Non-profit New Loans | Non-profit Expanded Loans | |
| Term | 5 years | ||
| Minimum Loan Size | $250,000 | $10 million | |
| Endowment Cap | $3 billion | ||
| Years in Operation | At least 5 years | ||
| Eligibility Criteria (See Term Sheets for More Detail) |
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| Maximum Loan Size | The lesser of $35 million, or the borrower’s average 2019 quarterly revenue | The lesser of $300 million, or the borrower’s average 2019 quarterly revenue | |
| Risk Retention | 5% | ||
| Principal Repayment | Principal deferred for two years; years 3-5: 15%, 15%, 70% | ||
| Interest Payments | Deferred for one year | ||
| Rate | LIBOR + 3% | ||
[Source: Federal Reserve]
Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.
