Nonprofits are facing stark challenges as coronavirus upends revenue and donations amid mounting community needs, and the Federal Reserve on Friday moved to provide limited financial relief to the organizations.
The Fed widened its midsize business loan program so that it can be used by nonprofit hospitals, universities, and social service organizations, making good on an earlier promise to do so. Prior versions of the so-called “Main Street” loan program were not designed to suit the nonprofits’ unique structures: Eligibility hinged on financial metrics that made little sense in a nonprofit context.
Through the Main Street program, nonprofits and businesses can get relatively cheap loans through banks. The banks must retain a 5 percent slice of the loan but can sell the rest to the Fed.
“Nonprofits provide vital services across the country and employ millions of Americans,” Fed Chair Jerome H. Powell said in a statement accompanying the release. “We have listened carefully and adapted our approach so that we can best support them in carrying out their vital mission during this extraordinary time.”
The Fed released proposals on how it might broaden the program to include nonprofits on June 15. Based on that feedback, the Fed lowered the minimum employment threshold for nonprofits that want to use the program from 50 employees to 10. The minimum loan size is $250,000, and the payback period is 5 years — the same terms as the rest of the program.
While the Fed’s Main Street lending program for businesses is now fully operational, it had purchased just $12 million in loans through July 15, data released Thursday showed. The program’s expected capacity is $600 billion, but its design may discourage use unless markets come under greater stress.
On Friday, Treasury Secretary Steven Mnuchin told lawmakers that the program had made a loan for $12.3 million “to doctors offices consisting of 15 practices in Wisconsin.” He added that the lending was done by a community bank and that there is a $50 million construction loan also in the works.
The central bank did not say when the nonprofit version will be up and running.