Federal Reserve Announces Plan to Expand Loans to Not-For-Profits

Regulation | June 17, 2020 | by Brendan Flinn

The Federal Reserve announced on June 15 that it intends to open the Main Street Lending Program loans to not-for-profit organizations. This article summarizes the loan proposal, its implications for LeadingAge members and next steps. 

The Federal Reserve announced on June 15 that it intends to open the Main Street Lending Program loans to not-for-profit organizations. Previously, the Fed indicated that it would not do so.

The Fed proposes to offer not-for-profit organizations the same terms as for-profit borrowers, including the “interest rate, deferral of principal and interest payments, and five-year term”. Eligible not-for-profit organization type are those with 501(c)(3) or 501(c)(19) statuses. The vast majority of not-for-profit aging services providers carry a 501(c)(3) status.

Additionally, not-for-profit borrowers must have at least 50 employees, and no more than 15,000 employees. In addition, the loans would be limited to those organizations with 2019 revenues less than $5 billion, endowments of less than $3 billion and with less than 30% of 2019 revenue sourced from donations.

These loans may be particularly helpful to larger aging services organizations who have not been eligible for other COVID-19 loan products (e.g., those with more than 500 employees). All LeadingAge members, however, should note the proposed terms of the loans, as outlined below.

Loans principal would be at minimum $250,000, with a maximum amount of “the borrower's average 2019 quarterly revenue”. The interest rate would be London Interbank Offered Rate (LIBOR) + 3%.

All Federal Reserve loans are payable, not forgivable. Principal repayment would be deferred by two years, with 15% due at the end of year three, 15% due at the end of year 4% and 70% due at maturity at the end of year 5. Interest payments would be deferred by one year.

The Federal Reserve published term sheets for the loans (here and here). Public feedback will be accepted until June 22, submitted to the Federal Reserve’s contact page. It is unclear to what degree to which the Fed will incorporate public feedback, or when these loans would actually become available. Notably, the loans only became available to for-profit organizations in mid-June despite announcement several months prior.

LeadingAge will submit feedback on behalf of our members, notably to request more favorable terms for not-for-profit organizations (e.g., a lower interest rate, longer term and without a balloon payment) and to request that loans become available to not-for-profits as soon as possible. LeadingAge previously submitted feedback to the Federal Reserve requesting that they expand loans to include not-for-profit organizations after they announced they did not plan to do so.