Dive Brief:
- Nonprofit organizations such as hospitals, universities and social service groups would be eligible for the Main Street Lending Program under terms the Federal Reserve released Friday.
- The Fed eased some of the criteria it had initially proposed for including nonprofits. For example, Friday's terms allow organizations with as few as 10 employees to apply. The previous proposed limit was 50.
- To be eligible, non-donation revenue must have accounted for 60% or more of expenses from 2017 to 2019, a reduction from the 70% proposed in June.
Dive Insight:
Nonprofits can take advantage of two of Main Street's three loan facilities: for new loans, which can stretch from $250,000 to a maximum of $35 million or the borrower’s average quarterly revenue in 2019 (whichever is less); and expanded loans, which can be between $10 million and $300 million (or, again, average quarterly revenue).
Nonprofits must have been in operation for five years, have less than $3 billion in endowment and have a minimum of 60 days' cash on hand. They also must have had a 2% operating margin in 2019, a reduction from 5% in the initial proposal.
Five-year loans carry an interest rate of 3 percentage points above LIBOR. Interest is deferred for one year; principal payments, for two years.
The Fed announced last month it was working on an expansion to include nonprofits and sought comments. Some 300 organizations asked that terms be modified to include smaller nonprofits, Bloomberg reported.
"We have listened carefully and adapted our approach so that we can best support [nonprofits] in carrying out their vital mission during this extraordinary time,” Fed Chair Jerome Powell said in a press release announcing the new terms.
Main Street loan terms have been a contentious topic between the government agencies overseeing the program. Disagreements between the Fed and the Treasury Department prompted a long delay in Main Street's rollout, The Wall Street Journal reported last week. Fed officials favored easier terms that would increase the risk of the government losing money, the publication’s sources said, while Treasury officials skewed more conservatively.
The Fed has announced several adjustments since March to boost demand for the program — twice lowering the loan threshold and increasing to 95% the share of each Main Street loan the central bank would purchase. The Fed on Wednesday began buying for-profit business loans from banks. The central bank purchased $12 million in the first day, according to a weekly reserve balance report published Thursday.
In another move allegedly meant to drum up interest in the program, the Federal Reserve Bank of Boston published a list this month of about 90 lenders that intend to offer loans to new customers. Others, such as Citi, Wells Fargo and U.S. Bank, plan to offer Main Street loans only to existing customers.
