On June 15th, the Federal Reserve Board released proposed terms sheets to expand the Main Street Lending Program to nonprofit entities in sound financial condition before the onset of the COVID-19 pandemic. The announcement from the Federal Reserve would grant small and medium sized nonprofits access to additional liquidity.
Under the CARES Act, the Main Street Lending Program was established by the Federal Reserve Board with the Secretary of the Treasury. The Federal Reserve Bank of Boston has set up a special purpose vehicle (SPV) that it will lend to on a recourse basis. The SPV in turn will purchase participations loans made by eligible lenders under two proposed nonprofit facilities; Nonprofit Organization New Loan Facility (NONLF) and Nonprofit Organization Expanded Loan Facility (NOELF).
The Nonprofit Organization New Loan Facility (NONLF) has a minimum loan size of $250,000 and is capped at the lesser of (i) $35 million or (ii) the Eligible Borrower’s average 2019 quarterly revenue. The Nonprofit Organization Expanded Loan Facility (NOELF) has a minimum loan size of $10 million and a maximum loan size that is the lesser of (i) $300 million or (ii) the Eligible Borrower’s average 2019 quarterly revenue.
Under both facilities, the loans have a 5-year maturity, principal payments deferred for two years, and interest payments deferred for one year. Both facilities have a principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% maturity at the end of the fifth year. The interest rate for both facilities is adjustable rate of LIBOR (1 or 3 months) plus 300 basis points. Prepayment is permitted without penalty. Additional details about NONLF and NOELF can be found on the Federal Reserve website.
An Eligible Borrower for both facilities is:
- Tax-exempt organization under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code
- Was established prior to, and has been in continuous operation since January 1, 2015
- Meets at least one of the following two conditions: (i) has 15,000 employees or fewer, or (ii) has 2019 annual revenues of $5 billion or less
- Has at least 50 employees
- Has an endowment of less than $3 billion
- Has 2019 revenues from donation that are less than 30% of total 2019 revenues
- Has a ratio of adjusted 2019 earnings before interest, depreciation, and amortization (EBIDA) to unrestricted 2019 operating revenue, greater than or equal to 5%
- has 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
- at the time of loan origination, has a ratio 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 (Centers for Medicare & Medicaid Services) Accelerated and Advance Payments, that is greater than 65%
- is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States
- does not participate in any other Main Street Lending Programs (MSNLF, MSPLF, and MSELF), the Primary Market Corporate Credit Facility, or the Municipal Liquidity Facility. Note: if an entity participates in the NONLF it cannot participate in the NOELF and vice versa
- has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A of Title IV of the CARES Act).
The chart below displays additional details about the NONLF and the NOELF.
|Proposed Main Street Lending Program Nonprofit Loan Options||Nonprofit New Loans||Nonprofit Expanded Loans|
|Minimum Loan Size||$250,000||$10M|
|Endowment Cap||$3 billion|
|Years in Operation||At least 5 years|
|Employee Min/Max||Employees fewer than 15,000 and greater than 50|
|Revenue cap and source requirement||2019 Revenues less than $5 billion, with less than 30% sourced from donations|
|Maximum Loan Size||The lesser of $35M, or the borrower’s average 2019 quarterly revenue||The lesser of $300M, or the borrower’s average 2019 quarterly revenue|
|Principal Repayment||Principal deferred for two years; years 3-5: 15%, 15%, 70%|
|Interest Payments||Deferred for one year|
|Rate||LIBOR + 3%|
As these financing solutions evolve and change frequently, please refer to our website for the most current information.
The Dopkins Transaction Advisory Specialists and our Financial Advisory Service Team is here to assist you in accessing liquidity and how to respond to changed business circumstances in light of COVID-19 while navigating the terms and conditions of the emergency loan programs identified above. Our team focuses on helping business owners and companies identify and secure short-term and long-term capital. Whether it’s domestic or foreign A/R, inventory, purchase order, construction, mezzanine financing, term loans and equity, our team has multiple sources of financing that will provide solutions to our clients.
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About the Author
Joseph A. Heim CFE, CPA
Joseph Heim has over 25 years' experience investigating matters involving white-collar crime, fraud and corruption. He provides forensic accounting, litigation support and expert witness services to businesses, attorneys and commercial finance lenders. He is the Partner in charge of Dopkins Asset Based Lending Consulting Services.