The CARES Act also directed the Federal Reserve (the Fed) to establish a program of assistance for “mid-sized businesses” to compensate for losses incurred as a result of COVID-19.

The Fed responded by establishing the Main Street Lending Program, which was not initially available to nonprofit organizations. However, after soliciting public feedback, the Fed announced on July 17, 2020 that it was modifying the Main Street Lending Program to add two new loan options for nonprofits: the Nonprofit Organization New Loan Facility (“New Loans”) and the Nonprofit Organization Expanded Loan Facility (“Expanded Loans”), for upsizing outstanding loans between Eligible Lenders and Eligible Borrowers. Due to low utilization, the Main Street Lending Program stopped accepting loans on December 14, 2020, and was terminated on January 8, 2021.

In order to be eligible for a New Loan or Expanded Loan, as applicable, a tax-exempt nonprofit community action agency (CAA) must:

1. Have been in continuous operation since January 1, 2015;
2. Have either (i) 15,000 employees or fewer, or (ii) had 2019 annual revenues of $5 billion or less;
3. Have at least 10 employees;
4. Have an endowment of less than $3 billion;
5. Have total non-donation revenues (including government grants) equal to or greater than 60% of expenses for the period from 2017-2019;
6. Have a ratio of adjusted 2019 earnings before interest, depreciation, and amortization (“EBIDA”) to unrestricted 2019 operating revenue, greater than or equal to 2%;
7. Have a ratio (expressed as a number of days) of (i) liquid assets (unrestricted cash and investments that can be accessed within 30 days) at the time of loan origination or upsizing to (ii) average daily expenses over the previous year, equal to or greater than 60 days;
8. At the time of loan origination or upsizing, have a ratio of (i) unrestricted cash and investments to (ii) 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%; and
9. Not already be a borrower of New or Expanded Loans under the Main Street Lending Facility.

In addition to the requirements above, an Eligible Lender may impose additional requirements related to a Borrower’s financial condition and creditworthiness. Nonprofit organizations that otherwise meet the Eligible Borrower requirements released by the Fed may not be approved for a loan or may not receive the maximum allowable amount.

Borrowers can find a list of lenders accepting new nonprofit clients for the Main Street Lending Program on the Federal Reserve Bank of Boston’s website. Applicants must reach out to an Eligible Lender directly to request more information and obtain application paperwork. An applicant may submit applications for a Main Street Lending Program loan to more than one Eligible Lender, but should notify each lender to which it submits an application of any other pending or accepted applications. If an applicant’s application is declined by one Eligible Lender, the applicant may apply through a different Eligible Lender.

The Main Street Lending Program is intended to help nonprofit organizations that were in sound financial condition prior to the onset of the COVID-19 pandemic maintain their operations and payroll until conditions normalize. Eligible Borrowers must use the proceeds of their loan only in furtherance of their exempt purpose, and must refrain from using program funds for:

• With respect to an Eligible Borrower that is a subsidiary of a foreign entity, for the benefit of an Eligible Borrower’s foreign affiliates or subsidiaries;
• Refinancing or accelerating payment of existing debt, except under the limited exception for mandatory and due debt and interest payments after the origination of the Main Street loan;
• During the term of the loan, paying dividends, distributing capital, repurchasing equity, or paying compensation over specified thresholds; or
• Repaying other debt ahead of schedule during the term of the loan.

As discussed further under Loan Terms and Loan Forgiveness, Eligible Borrowers must also make certain promises when they take out a Main Street Lending Program loan. Although they are not bound to use the funds for a particular purpose, the Fed has stated that they should make reasonable efforts to maintain payroll and retain employees during the time the loan is outstanding.

The minimum loan sizes for the New and Expanded Loan facilities, respectively, are $100,000 and $10 million. For New Loans, the maximum loan size is the lesser of $35 million or the borrower’s average 2019 quarterly revenue. For Expanded Loans, the maximum loan size is the lesser of $300 million, or the borrower’s average 2019 quarterly revenue.

New and Expanded Loans have a term of 5 years, with principal payments deferred for two years (principal payments are due at the end of each of years 3-5 in the following amounts: 15% of principal, 15% of principal, 70% of principal) and interest payments deferred for one year (unpaid interest will be capitalized). Eligible Borrowers are able to prepay the loan without penalty. The interest rate for Main Street Lending Program loans is based on the London Inter-bank Offered Rate (LIBOR) plus 3%, so it will fluctuate over time. Borrowers may also have to pay a one-time transaction fee (0.75%-1% of principal) for loans over $250,000. At the time of origination or upsizing, and throughout the term of the loan, Main Street Lending Program loans should be senior to or ranked equally with any of the Eligible Borrower’s other loans or debt obligations in terms of priority and, if applicable, security (Expanded Loans don’t have to be senior to mortgage debt). These loans are not forgivable.

When taking out a New or Expanded Loan under the Main Street Lending Program, Borrowers will be required to make certain certifications and agree to certain covenants, including (but not limited to) the following:

• The Eligible Borrower must commit to refrain from repaying the principal balance of, or paying any interest on, any debt until the Eligible Loan is repaid in full, unless the debt or interest payment is mandatory and due.
• The Eligible Borrower must commit that it will not seek to cancel or reduce any of its committed lines of credit with the Eligible Lender or any other lender.
• The Eligible Borrower must certify that it has a reasonable basis to believe that, as of the date of origination of the Eligible Loan and after giving effect to such loan, it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period.
• The Eligible Borrower must commit that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
• The Eligible Borrower must certify that it is eligible to participate in the Facility, including in light of the conflicts of interest prohibition in section 4019 of the CARES Act.

Borrowers must also make reasonable efforts to maintain their payroll and retain their employees during the time the loan is outstanding.

For additional information, see the following resources:

• Section 4003 of the CARES Act
• Main Street Lending Program (the Federal Reserve)
• Nonprofit Organization New Loan Facility Term Sheet
• Nonprofit Organization Expanded Loan Facility Term Sheet
• CARES Act Resources for Nonprofits (Independent Sector