Fed proposes expanding Main Street loan program to nonprofits

The Federal Reserve is proposing an extension of its emergency loan program to include U.S. nonprofits like universities and charitable organizations. 

On Monday, the Fed released a framework for how it might offer loans as small as $250,000 or as large as $300 million under its Main Street Lending Program. Broadly, the Fed would make eligible any 501(c)(3) or 501(c)(19) organization with between 50 and 15,000 employees, as long as the applicant’s 2019 revenues were less than $5 billion and had less than 30% of those revenues sourced from donations. 

Fed Chairman Jerome Powell said in a statement that the Fed is prioritizing nonprofits because of the “essential services” they provide to communities amidst the COVID-19 crisis.

“Nonprofits provide vital services across the country and we are working to help them through this difficult time,” Powell said.

Nonprofits younger than five years or with an endowment larger than $3 billion will not be eligible. 

The Fed is asking for public comment on its proposals through June 22.

Main Street Loans

For almost three months, the Fed has been hard at work on standing up the Main Street Lending Program for small and medium sized businesses. 

The program officially opened Monday through a lender registration portal that will establish the network of banks and lenders responsible for actually underwriting the loans.

The loans are five years in term and will allow the borrower to defer principal payments for two years, interest payments for one year, and are priced at LIBOR plus 3%. 

Fed officials, however, expressed concern that nonprofits would not be able to access the facility. American colleges and universities have been particularly pinched as students face uncertainty about being able to return to campus in the fall.

The Fed is proposing the same terms to loans under the nonprofit facilities. Nonprofits will be able to obtain a loan large enough to cover the entirety of a quarter’s worth of revenue. The nonprofit program would involve two programs, an “extended” facility that would modify an existing loan under the facility’s terms, and a “new” facility that would originate new credit.

The maximum loan size under the “extended” facility will be $300 million and the maximum loan size under the “new” facility will be $35 million.

The Fed will offer to take on nearly all of the credit risk under the nonprofit facility, as it would with its business loans. The facility would only require the lender to hold onto 5% of the loan for both the extended and new facilities.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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