Nearly three months after its initial announcement, on June 15, 2020, the Federal Reserve launched its Main Street Lending Program (MSLP), offering additional support for small and mid-size businesses struggling as a result of the COVID-19 pandemic. On Friday, July 17, 2020, the Fed modified the MSLP to provide loan facilities for non-profit organizations, such as educational institutions, hospitals, and social services organizations. Until now, only businesses that were organized for-profit were eligible for the MSLP.
Nonprofits will be eligible for two loan options: the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF). Though terms sheets are now available for the NONLF and the NOELF, these facilities are not yet operational but are expected to launch soon.
The terms of the MSLP nonprofit loans generally mirror the loans benefittingfor-profit businesses:
Eligible borrowers for the NONLF and NOEFL must be a U.S., tax-exempt nonprofit organization described in Section 501(c)(3) or Section 501(c)(19) of the Internal Revenue Code of 1986, as amended, that has not participated in or received specific support pursuant to the CARES Act, and meets the following criteria:
Like other MSLP loans, principal payments are deferred during the first two years and interest payments are deferred during the first year. Principal payments will be amortized such that 15% will be due at the end of each of the third and fourth years of the loan, with a balloon payment of 70% due at maturity at the end of the fifth year.
Loans issued under NONLF will range in size from $250,000 to the lesser of $35 million or the borrower's average 2019 quarterly revenue and may not be contractually subordinate to any of the borrower's other loans and debt instruments, in terms of priority. Borrowers can increase existing debt under NOELF by borrowing an additional $10 million to the lesser of $300 million or the borrower's average 2019 quarterly revenue. The upsized tranche must at all times be senior to or pari passu with all of the borrower's other loans and debt instruments (other than mortgage debt) in terms of both priority and security.
As with other MSLP loans, non-profit borrowers will be required to make certain certifications and covenants:
Unlike loans under the Paycheck Protection Program, none of the loans are eligible for forgiveness but there is no requirement that funds received from a MSLP loan be used only for payroll, mortgage interest, rent, and utilities. While borrowers should make commercially reasonable efforts to maintain payroll and retain employees, borrowers that have already reduced their workforce will not be barred from participating in the program for that reason.
If you have any questions or want to discuss these matters further, please don't hesitate to contact the Gould & Ratner attorney with whom you work regularly, or any of the lawyers in our Coronavirus/COVID19 Resources Team.