The Federal Reserve has created two new loan options for nonprofits under its Main Street Lending Program — the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF) — as relief during the COVID-19 pandemic.
Eligibility Requirements for Nonprofits
To be eligible for a NONLF or NOELF loan, a borrower must be either a 501(c)(3) organization or a tax-exempt veterans’ organization under IRC section 501(c)(19) that:
- Has been in continuous operation since January 1, 2015;
- Is not an Ineligible Business;
- Meets at least one of the following two conditions: (a) has 15,000 employees or fewer, or (b) had 2019 annual revenues of $5 billion or less;
- Has at least 10 employees;
- Has an endowment of less than $3 billion;
- Has total non-donation revenues equal to or greater than 60% of expenses for the period from 2017 through 2019;
- Has a 2019 operating margin of greater than or equal to 2%;
- Has equal to or greater than 60 days’ cash on hand;
- Based on ratio of resources to liabilities, has current debt repayment capacity that is greater than 55%;
- Was created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States;
- Does not also participate in the NONLF, the MSNLF, the MSPLF, the MSELF, the Primary Market Corporate Credit Facility, or the Municipal Liquidity Facility; and
- Has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020.
Terms for New Loans (NONLF)
The following terms for loans originated after June 15, 2020 qualify as a NONLF loan if the loan has all of these features:
- 5-year maturity;
- Minimum loan size of $250,000;
- Maximum loan size that is the lesser of (a) $35 million or (b) the eligible borrower’s average 2019 quarterly revenue;
- Adjustable interest rate of LIBOR (1 or 3 month) plus 3%
- Transaction fee: 1% of principal
- Servicing fees: up to 1% origination fee; 0.25% per annum servicing
- Lender risk retention: 5%
- Principal payments deferred for two years and interest payments deferred for one year (unpaid interest will be capitalized);
- Principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at maturity at the end of the fifth year;
- Prepayment permitted without penalty.
Terms for Expanded Loans (NOELF)
- 5-year maturity;
- Minimum loan size of $10 million;
- Maximum loan size that is the lesser of (a) $300 million or (b) the eligible borrower’s average 2019 quarterly revenue;
- Adjustable interest rate of LIBOR (1 or 3 month) plus 3%
- Transaction fee: 0.75% of principal
- Servicing fees: up to 0.75% origination fee; 0.25% per annum servicing
- Lender risk retention: 5%
- Principal payments deferred for two years and interest payments deferred for one year (unpaid interest will be capitalized);
- Principal amortization of 15% at the end of the third year, 15% at the end of the fourth year, and a balloon payment of 70% at maturity at the end of the fifth year;
- Prepayment permitted without penalty.
In addition to these specific loan requirements, nonprofits must fully repay a NONLF or NOEFL loan before making any principal or interest payments on other debts unless those payments are mandatory and due. Nonprofits must also certify that it has the resources to meet its financial obligations for at least 90 days and will not seek bankruptcy protection during that period. Nonprofits must also “make reasonable efforts” to maintain employees and payroll.
Provident Law’s church and nonprofit attorneys are here to answer questions and to aid in establishing and crafting policies governing nonprofit governance. We recognize how essential the missions of nonprofit and religious organizations are for society, and we stand ready to counsel and serve the churches and nonprofit organizations of Arizona. Contact us to learn more.