Many nonprofit organizations have been exploring whether they are eligible for direct loans under the Main Street Lending Program (Program). The Program, administered by the Federal Reserve (Fed), will provide $600 billion in loans to small and mid-sized businesses. In the original term sheets published by the Fed, nonprofits were not explicitly excluded, but it wasn't entirely clear they were included either. The metrics for determining the size of a loan in the Program rely on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), a measure that nonprofits typically don't calculate.
Today, the Fed published an FAQ that removes the ambiguity. Unfortunately, we now know that nonprofits are not currently eligible for the Program. However, there is a silver lining: the Fed simultaneously announced it is evaluating a separate approach tailored directly to nonprofits.
Here's the full explanation:
Q: Are non-profit organizations eligible to borrow under the Program?
A: While non-profit organizations are not currently eligible under the Program, the Federal Reserve acknowledges the unique needs of non-profit organizations, many of which are on the front lines providing critical services and research to fight the pandemic. EBITDA is the key underwriting metric required for the [Main Street Program Loans]. The Federal Reserve recognizes that the credit risk of non-profit organizations, as a matter of practice, is generally not evaluated on the basis of EBITDA. The Federal Reserve and the Treasury Department will be evaluating the feasibility of adjusting the borrower eligibility criteria and loan eligibility metrics of the Program for such organizations.
We are available to advise nonprofit organizations on the options for stimulus relief available under the various federal stimulus programs and will be closely monitoring for new programs that apply to nonprofits.