Federal Reserve Releases First Drafts of Term Sheets for the Main Street Lending Program for Nonprofit Organizations

By Ryan E. Caster, CPA on June, 17 2020
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Ryan E. Caster, CPA

Director

Fed Reserve

Overview

On Monday, June 15th, 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 runs through Monday, June 22nd

Eligibility Requirements

Based on the initial 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 50 employees 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 30% of total 2019 revenues, (b) a ratio of adjusted 2019 earnings before interest, depreciation, and amortization to unrestricted 2019 operating revenue that is greater than or equal to 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 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 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 press release, summarizes the proposed loan options under the nonprofit loan program.

Market Lending Chart

Conclusion

This week’s press release from the Federal Reserve is good news for nonprofit organizations that were in sound financial condition prior to the coronavirus pandemic and that would benefit from additional liquidity. While the Federal Reserve has provided proposed eligibility requirements and loan terms, it is expected that the eligibility requirements and loan terms will be revised following the public feedback period, as was the case with the existing Main Street Lending Program, which saw substantial changes to the program following the public feedback period.

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