New financial relief is available to nonprofits thanks to the Federal Reserve. As a result of the CARES Act, the Fed created the Main Street Lending Program (“MSLP”) to provide support to small and medium-sized businesses to offset financial devastation caused by the COVID-19 pandemic. At first, it was not available to nonprofits. However, on July 17th, the Fed expanded MSLP to provide loans for certain nonprofits. The intent is to assist nonprofits that were in sound financial condition before the pandemic and can benefit from additional liquidity to manage through this challenging time.
MSLP loans are available to certain nonprofits. To be eligible, nonprofits must:
- Be exempt from federal income tax under Section 501(c)(3) or 501(c)(19) of the Internal Revenue Code;
- Have been operational since January 1, 2015;
- Have at least 10 employees and either no more than 15,000 employees or $5 billion in 2019 revenues;
- Have no more than $3 billion in endowed funds;
- Have a minimum of 60 days’ cash on hand;
- Have had non-donation revenues of at least 60% of its expenses between 2017 and 2019; and
- Have had an operating margin of at least 2% in 2019.
Nonprofits that took advantage of the Paycheck Protection Program (“PPP”) may also obtain a MSLP loan. To qualify for forgiveness of its PPP loan, a nonprofit must use its PPP loan for certain expenses. Thus, it is important to ensure that MSLP loan proceeds are not used for the expenses the PPP loans were intended for. Please see our blog post on PPP Loan Forgiveness for more information.
MSLP Loan Programs
Eligible nonprofits may apply for MSLP loans through one of two programs: Nonprofit New Loans and Nonprofit Expanded Loans.
Under the Nonprofit New Loans, eligible applicants may receive loans ranging from $250,000 to $35 million. The loans must not be contractually subordinated in priority to any of the nonprofit’s other loans or debt instruments.
Under the Nonprofit Expanded Loan, eligible applicants that have an existing loan with an eligible lender may receive upsized loans ranging from $10 million to $300 million. The loan must be senior to or equal to, in terms of priority and security, the nonprofit’s other loans or debt instruments, other than mortgage debt.
Under both loan programs, nonprofits must pay 15% of the principal balance at the end of the third and fourth years, and a balloon payment of 70% at the end of the fifth year.
The details of both loan programs include:
- Loan terms of 5 years,
- An Interest rate equal to the London Inter-Bank Offered Rate (LIBOR) + 3%,
- Deferred principal payments for 2 years, and
- Deferred interest payments for 1 year.
Nonprofits that wish to apply for a loan under MSLP must do so directly with eligible lenders. A list of eligible lenders can be found by following this link: Eligible Lenders.
For more information regarding qualifying or applying for loans through MSLP, please contact The Law Firm for Non-Profits.