Federal Reserve Reverses Course on Emergency Lending for Nonprofits

In June, when the government implemented its Main Street program to get banks to make emergency loans to small businesses, nonprofits were left on the sidelines, much to the dismay of nonprofit leaders like Lisa Gold, of the Asian American Arts Alliance in New York: “I find the omission of nonprofits from the Main Street lending program not only unconscionable, but economically disastrous...the cost to society will be much greater in the long run than the cost to support these organizations with loans.”**

Both for-profit businesses and non-profits have had equal access to emergency loans through the Paycheck Protection Program (PPP) since March, but only for-profit businesses had access to the Federal Reserve’s Main Street program when it launched on June 8th.

Now the Federal Reserve has changed course…

On July 17th, after soliciting public input over many weeks, the Federal Reserve announced an expansion of Main Street, giving nonprofit organizations, including colleges, universities, and hospitals, access to loans.

The differences between PPP and the Main Street program

Slightly different from the Paycheck Protection Program (PPP), which makes direct government loans, the Main Street Program encourages bank lending by absorbing the majority of the loans from bankers’ balance sheets.

In other good news for nonprofits, access to loans through the PPP has also been extended through August 8th. The program was initially set to expire on June 30th. 

The Federal Reserve Board recognizes the economic significance of the nonprofit sector 

The change in rules to the Main Street Program is an indicator that the Federal Reserve recognizes the critical contributions the nonprofit sector makes to society. “‘Nonprofits provide vital services across the country and employ millions of Americans,’ Fed Chairman Jerome Powell said in a statement.”*

Determining if your nonprofit is eligible

Eligible nonprofit organizations must meet the following requirements:

• be a 501(c)(3) or 501(c)(19)*

• demonstrate having been in sound financial condition prior to the outbreak of Covid 19

• have been in operation for at least five years

• have at least 10 employees

• have an endowment not exceeding $3 billion

Finally, interested nonprofits must borrow at least $250,000 while also maintaining a ratio of assets to debt that is greater than 55%.*

Key metrics...

According to the Federal Reserve, key features of the Main Street loan program include:

• Principal repayment: deferred for two years. In years 3-5: 15%, 15%, 70%

• Interest Payments: deferred for one year; Rate = LIBOR +3%

Nonprofit leaders interested in applying can find more about the fine print online:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20200717a.htm

Do Gooders: Welcome to Main Street!

Now a wide range of nonprofit entities will in fact be eligible to apply for crisis lending through the Main Street program alongside for-profit businesses.

This is good news for Lisa Gold and other nonprofit leaders, especially since the Main Street program has a lending capacity to the tune of some $600 billion!

Sources:

* Egan, Matt. “Fed Opens $600 Billion Main Street Program to Colleges, Hospitals and Other Nonprofits.” CNN Business. 17 July, 2020. https://www.cnn.com/2020/07/17/business/fed-main-street-nonprofits-hospitals-colleges/index.html

** Saphir Ann, Lindsay Dunsmuir, and Jonnelle Marte. “Fed Deluged by Letters from Needy over U.S. Loan Program.” Reuters (Business News). 1 July, 2020. https://www.reuters.com/article/us-usa-fed-mainstreet/fed-deluged-by-letters-from-needy-over-u-s-loan-program-idUSKBN242782