July 21, 2020 UPDATE: The Federal Reserve announced that the Main Street Lending Program has been modified to allow participation from eligible nonprofit organizations including educational institutions, hospitals, and social service organizations. Eligible organizations must meet the following eligibility criteria:

• In operation at least 5 years
• Have at least 10 employees
• Have total non-donation revenues equal to or greater than 60% of expenses from 2017 through 2019
• Have 2% or more operating margin in 2019
• Have at least 60 days cash on hand
• Have a current debt repayment capacity of at least 55% measured by a ratio of cash, investments, and other resources to outstanding debt and certain other liabilities

  Learn more regarding the Main Street Lending Programs available to nonprofit organizations   Nonprofit organizations are among the organizations affected by the COVID-19 pandemic. While several relief programs are available through the federal government, determining when your organization is eligible for each program can be confusing, due to differing criteria. Here, we explore three loan programs offered through federal government programs or federal legislation due to the COVID-19 crisis and the eligibility of nonprofit organizations to apply. Economic Injury Disaster Loans The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) is a program, administered through the SBA, that is available to eligible organizations suffering economic injury due to a declared disaster. Because COVID-19 is considered a declared disaster, these loans are available in all 50 states as well as Washington D.C., Guam, the Virgin Islands, Puerto Rico, the Northern Mariana Islands, and American Samoa. Loans awarded to nonprofit organizations are up to $2 million, carry a 2.75 percent interest rate, and are amortized over a period of up to 30 years. Payments are deferred for the first year. The following nonprofit organizations are eligible to apply:

• Private nonprofit organizations that are non-governmental agencies or entities that currently have an effective ruling letter from the IRS granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code of 1954,
• Private nonprofit organizations that have satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law, or
• Faith-based organizations. (For more information regarding faith-based organizations, please visit the SBA’s Faith-Based Organizations FAQs page).

  In addition to the loan, applicants may apply for an emergency advance (or emergency grant) of up to $10,000, based on the organization’s employee headcount. While this advance or grant awarded does not need to be repaid (even if the applicant declines the loan), it will reduce forgiveness on the Paycheck Protection Program loan, which is discussed further below. Currently, the EIDL program is only accepting new applications from agricultural enterprises due to funding limitations. It is unknown whether additional applications from other organizations, including nonprofit organizations, will be accepted in the future. Organizations who already applied for this program may check on the status of their application by contacting the SBA’s Customer Service Center at 1-800-659-2955 (TTY: 1-800-877-8339) or DisasterCustomerService@sba.gov. June 15, 2020 UPDATE: The SBA is once again accepting applications from all eligible organizations. It is unknown how much funding is still available, but applicants are awarded funds on a first-come, first-served basis. Interested organizations should visit sba.gov/disaster. Paycheck Protection Program The Paycheck Protection Program (PPP) is a loan program created through the CARES Act which was passed by Congress and signed into law on March 27, 2020. Unlike the EIDL program, the PPP is administered by lenders such as banks. The program offers eligible organizations loans equal to roughly 2.5 months of 2019 payroll costs (up to $10 million in total loan proceeds), to be used on specified payroll costs, rent, mortgage interest, and utilities. If borrowers spend the funds in accordance with the guidelines and maintain employee headcount and salaries and wages, the loan may be forgiven up to 100 percent. Loan proceeds not forgiven will be subject to a 1 percent interest rate and 2-year amortization period. Some nonprofit organizations are eligible to apply for PPP loans. Specifically, CARES allows 501(c)(3) nonprofit organizations, 501(c)(19) veterans organizations, and certain tribal business concerns to apply. Note that the organization must have under 500 employees (or otherwise meet the SBA Size Standard for its NAICS code), as well as agree to certifications that can be found on the PPP application and PPP forgiveness application. Funding is still available for this program and nonprofit organizations can still apply. Interested organizations should contact their lender to begin the application process. Note that guidance on this program continues to evolve, and the latest updates on both the loan process and the forgiveness process can be found at https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses. In addition, as Congress continues to negotiate changes to the program applicants and borrowers should watch for changes or stay in touch with their advisors to ensure they are complying with the latest program guidelines. June 15, 2020 UPDATE: While funds remain, loans will only be issued through June 30, 2020. Interested organizations should contact their lender to begin the application process. Main Street Lending Program The Main Street Lending Program (MSLP) offers loans to eligible small and medium-size businesses affected by COVID-19. The program offers loans, starting at $500,000 based on the business’s debt structure and 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). According to the program’s Frequently Asked Questions, nonprofit organizations are currently not eligible for this program. The document states: “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 [loan program]. 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.” For more information on this program, visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm. June 15, 2020 UPDATE: The Federal Reserve announced that it is seeking feedback through June 22 on its proposal to expand this program to small and medium-sized nonprofit organizations. If approved, eligible nonprofits may include organizations that:

• are considered a tax-exempt organization under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code
• were in sound financial condition before the coronavirus pandemic and could benefit from additional liquidity to manage through this challenging period
• employee a minimum of 50 and maximum of 15,000 employees
• have operational history of at least five years
• have endowments of no more than $3 billion.

  Additional financial thresholds based on operating performance, liquidity, and ability to repay debt may apply. In addition, the Main Street Lending Program has also been expanded for all organizations with a new minimum loan size of $250,000. To learn more regarding the proposal to expand the program to nonprofits, visit the Federal Reserve’s press release at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200615b.htm. For additional information about general program changes, visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.   For more information about relief options available to nonprofit organizations, contact your HBK Advisor.

On July 15, an updated FAQ document was released on the Main Street Lending Program (MSLP).

Key updates include:

Revised Definition of Ineligible Businesses
A recently released definition of ineligibility provided by the SBA and Treasury for the Paycheck Protection Program has been adopted for the Main Street Lending program. Ineligible businesses include those where “an owner of 20 percent or more of the equity of the applicant is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for, a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year”.

In addition, a sole proprietor who is not otherwise established as a “business” as defined by the program is not an eligible borrower under the Main Street program.

Borrowers are expected to review all criteria for eligibility and ensure they make a reasonable, good-faith effort to determine their eligibility.

Clarification on loan terms
Certain terms of the Main Street Loan have been updated, including:

• Lenders may charge certain fees to borrowers, and fees may be included in the principal amount of the loan.
• While the interest rate is calculated based on LIBOR, LIBOR floors are not permitted.
• Borrowers who were established before March 13, 2020, but who cannot produce sufficient financial history to establish their financial condition before the COVID-19 pandemic may not be eligible for a Main Street loan. However, those entities with clear predecessors or subsidiaries may be permitted to use the financial records of these predecessors or subsidiaries.
• The program generally prohibits using the funds for the benefit of the borrower’s foreign parents, affiliates, or subsidiaries, or to refinance or pay existing debt, nor can the loan funds (or any funds) be used to pay dividends, distribute capital, repurchase equity, pay compensation over certain thresholds or repay debt ahead of schedule, unless otherwise specified in the program terms. Borrowers or prospective borrowers are encouraged to review all loan terms and ensure compliance with the provisions for using the funds.

Clarifications to capital distribution restrictions
The CARES Act provides specific restrictions on compensation, stock repurchase, and capital distributions for borrowers of a Main Street Loan. However, these restrictions do not apply to “distributions made by an S Corporation or other tax pass-through entities to the extent reasonably required to cover its owners’ tax obligations in respect of the entity’s earnings or distributions made by a tribal business to a tribal government owner.” Additional information pertaining to tribal businesses is provided in FAQ H.15.

To review the latest FAQ document as well as term sheets and other program information, please visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.

If you have questions about the Main Street Lending Program or other COVID-19 relief options, please contact your HBK Advisor.

According to a July 6 announcement, the Federal Reserve Board’s Main Street Lending Program (MSLP) is now fully operational. Lenders are accepting applications and the Federal Reserve is prepared to participate in eligible loans, the agency said.

The program is designed to help small and medium-sized business relieve the financial strain caused by the COVID-19 crisis. Loans can range in size from $250,000 to $300 million. The loans are not grants and will not be forgiven.

Interested parties can review the program, eligibility, term sheets for each facility (new, priority, or expanded), and frequently asked questions via the following links:

• Frequently Asked Questions:
• Term Sheet – Main Street New Loan Facility (MSNLF)
• Term Sheet – Main Street Priority Loan Facility (MSPLF)
• Term Sheet – Main Street Expanded Loan Facility (MSELF)
• Additional Program Information

Prospective borrowers can also contact a lender participating in the program for additional details. Not all lenders are participating.

If you have questions about the MSLP or other COVID-19 relief options, please contact your HBK Advisor.

On June 8, in preparation for the imminent launch of its Main Street Lending Program (MSLP), the Federal Reserve announced updates that expand the program’s reach to more businesses, principally by lowering the minimum and raising the maximum loan size. The following chart, which was included in the Fed’s press release, summarizes the changes:

Main Street Lending Program Loan Options	New Loans	Priority Loans	Expanded Loans
Term	5 years (previously 4 years)
Minimum Loan Size	$250,000 (previously $500,000)		$10M
Maximum Loan Size	The lesser of $35M, or an amount that, when added to outstanding and undrawn available debt, does not exceed 4.0x adjusted EBITDA (previously $25M)	The lesser of $50M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA (previously $25M)	The lesser of $300M, or an amount that, when added to outstanding or undrawn available debt, does not exceed 6.0x adjusted EBITDA (previously $200M)
Risk Retention	5%	5% (previously 15%)	5%
Principal Repayment	Principal deferred for two years, years 3-5: 15%, 15%, 70% (previously principal deferred for one year and 33.33% repayment due in years 2-4)	Principal deferred for two years, years 3-5: 15%, 15%, 70% (previously principal deferred for one year and 15%, 15%, 70% repayment due in years 2, 3, and 4, respectively)
Interest Payments	Deferred for one year
Rate	LIBOR + 3%

Source: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200608a.htm

The MSLP is designed to provide small and medium-sized businesses relief from financial strain caused by the COVID-19 crisis. Interested businesses should review eligibility criteria, as well as program details as of June 8, at the following links:

• Frequently Asked Questions: https://www.bostonfed.org/mslp-faqs
• Term Sheet – Main Street New Loan Facility (MSNLF): https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200608a1.pdf
• Term Sheet – Main Street Priority Loan Facility (MSPLF): https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200608a2.pdf
• Term Sheet – Main Street Expanded Loan Facility (MSELF): https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200608a3.pdf
• Additional Program Information: https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm

HBK will continue to provide program updates as they become available. If you have questions, please contact your HBK advisor.