NAICU Washington Update

Federal Reserve Extends Main Street Lending Program to Nonprofits

July 24, 2020

The Federal Reserve announced this week that nonprofit organizations, including colleges and universities, are now eligible for the Main Street Lending Program (MSLP).  

The initial program was designed to serve small- and medium-sized businesses that “were in sound financial condition before the onset of the COVID-19 pandemic.” The expanded program reflects that history, as well as the challenges that the Fed faces when attempting to structure a program in a manner that incentivizes banks to participate as lenders. 

As with the initial proposal, the MSLP will still be of somewhat limited use for colleges and universities and other nonprofits for several reasons.  First, it includes an interest rate set at LIBOR plus 3 percent. Second, the program includes a repayment length of five years with a balloon payment of 70 percent in year 5. And, most worrisome, institutions with endowments of more than $3 billion are not eligible.  However, in a nod to the Feds’ understanding that nonprofits are different from traditional businesses, there were some important changes made in the eligibility requirements in the final term sheet, including:
  • Minimum number of employees 10 (previously 50).
  • Total non-donation revenues equal to or greater than 60 percent of expenses for the period from 2017 through 2019 (previously 70 percent of revenues).
  • 2019 operating margin of 2 percent or more (previously 5 percent).
  • Current days cash on hand 60 days (previously 90 days).
  • Current debt repayment capacity — ratio of cash, investments and other resources to outstanding debt and certain other liabilities — of greater than 55 percent (previously 65 percent).
NAICU worked extensively to seek these changes as well as others that were not included. While this program cannot serve the overall liquidity needs of higher education, it will help some institutions as a bridge program through the current pandemic crisis. 

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