Nonprofit organizations play a critical role in our local and national economy by providing employment opportunities and essential services to our communities. The demand for these services has increased as a result of the spread of COVID-19. On July 17, the Federal Reserve modified and approved the Main Street Lending Program (MSLP) to provide greater access to credit for nonprofit organizations such as educational institutions, hospitals and social service organizations through two new loan options (Nonprofit Organization New Loan Facility and Nonprofit Organization Expanded Loan Facility) intended to help these organizations maintain operations and payroll throughout the pandemic. The nonprofit loan terms generally mirror those for MSLP for-profit business loans. The key terms of the loan options are detailed below.
Key Details of the MSLP Nonprofit Loan Options
Have been in continuous operation since January 1, 2015
Are not an ineligible business as defined in the term sheets
Have 15,000 or fewer employees or 2019 annual revenues of $5 billion or less
Have at least 10 employees
Have an endowment of less than $3 billion
Have total non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019
Have a ratio of adjusted 2019 earnings before interest, depreciation and amortization to unrestricted 2019 operating revenue, greater than or equal to 2%
Have a ratio (expressed in number of days) of liquid assets at the time of origination to average daily expenses over the previous year, equal to or greater than 60 days
Have a ratio of unrestricted cash and investments to 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 55%
Other terms as outlined in the term sheets
Secured or unsecured term loan originated by an eligible lender after June 15, 2020
Principal payments deferred for two years and interest payments deferred for one year
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% at maturity
Adjustable rate of LIBOR (1 or 3 month) + 300 basis points
Prepayment permitted without penalty
Subject to certain certifications and covenants as prescribed in the term sheet
Nonprofit Organization New Loan Facility (NONLF)
In addition to the terms as described in the key details, specific terms under the NONLF are as follows:
Minimum loan size of $250,000
Maximum loan size that is the lesser of $35 million or the borrower's average 2019 quarterly revenue
At the time of origination or any time during the term of the loan, the NONLF must not be contractually subordinated in terms of priority to any of the borrower's other loans or debt instruments
In addition to the terms as described in the key details, specific terms under the NOELF are as follows:
Minimum loan size of $10 million
Maximum loan size that is the lesser of $300 million or the borrower's average 2019 quarterly revenue
At the time of upsizing and at all times the upsized tranche is outstanding, the upsized tranche must be senior to or pari passu with, in terms of priority and security, the borrower's other loans or debt instruments, other than mortgage debt
The program is open through December 31, 2020 and eligible borrowers should contact their financial institution for additional information on the application process.
If you have any questions about this content, or if you would like more information about HoganTaylor's Nonprofit practice, please contact the author of this article, Jack Murray, CPA, Nonprofit Practice Lead, at firstname.lastname@example.org.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.