Fed expands Main Street Lending Program to more not-for-profits

By Jeff Drew

The Federal Reserve Board announced Friday that it has modified the Main Street Lending Program to provide greater access to credit for not-for-profit organizations such as educational institutions, hospitals, and social service organizations.

Specifically, the board approved two new loan options to help not-for-profits that were in sound financial condition before the COVID-19 pandemic hit.

The board also eased the requirements that not-for-profits need to fulfill to participate in the Main Street Lending Program.

Each not-for-profit participant in the Main Street program must be a tax-exempt organization as described in Sec. 501(c)(3) or 501(c)(19) of the Internal Revenue Code. They must also meet the following criteria (changes from previous requirements are noted below):

  • Minimum employees 10 (previously 50).
  • Total nondonation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019 (previously 70% of revenues).
  • 2019 operating margin of 2% or more (previously 5%).
  • Current days cash on hand 60 days (previously 90 days).
  • Current debt repayment capacity — ratio of cash, investments, and other resources to outstanding debt and certain other liabilities — of greater than 55% (previously 65%).

The Main Street not-for-profit loan terms generally mirror those for Main Street for-profit business loans, including:

  • The interest rate (LIBOR + 3%).
  • Principal and interest payment deferral (principal deferred for two years; years 3–5: 15%, 15%, and 70%).
  • Five-year term.
  • Minimum and maximum loan sizes.

The Main Street program so far

The Main Street program is one of a series of programs the Federal Reserve announced in April to provide up to $2.3 trillion in loans to households, businesses, and state and local governments struggling to deal with the COVID-19 pandemic. Specifically, the Main Street program supports loans to U.S. companies with less than $2.5 billion in 2019 revenue that were in good financial standing before the COVID-19 crisis and subsequent quarantines stalled the American economy.

The Main Street program was designed in part to fill a need for funding for companies too large for the Paycheck Protection Program (PPP), which is run by Treasury and the U.S. Small Business Administration (SBA) and provides forgivable loans to companies that in most cases must have no more than 500 employees.

Bolstered by $75 billion in equity provided by Treasury through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the Main Street program supports lenders that register for the program, by purchasing 95% of each loan that meets eligibility and documentation requirements.

Despite that guarantee, interest from lenders in the program has been tepid. So far, the Fed has purchased just $12 million in loans from lenders in the program, which finally became fully operational last week after the Fed made changes to increase interest in the program.

AICPA experts discuss the latest on the PPP and other small business aid programs during a weekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA's coronavirus resources page or subscribe to our email alerts for breaking PPP news.

Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.

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