For the first time since the Great Depression, the federal reserve will be lending directly to some companies through its Main Street Lending program. The idea is to target businesses that were successful before the pandemic but which are now struggling. And, the program is now available to certain nonprofits, including hospitals, social service organizations and schools.
According to the Associated Press, participating banks can make loans to nonprofits with:
- 10 or more employees
- Endowments of less than $3 billion
- 60 days of cash on hand
- Ability to cover 60% of their expenses from non-donation revenue
The Main Street Lending Program, launched July 6, can lend up to $600 billion. Through the program, a participating bank makes the loan to a qualifying applicant and then the Fed buys 95% of that loan.
For both small businesses and nonprofits, the loans are made for five years at just above 3%. There are no interest payments the first year and no principal payments for the first two years.
The Main Street Lending Program has already made about $12 million in loans to businesses. Unfortunately, some potential borrowers are finding the program complicated and struggle to find participating banks.
Critics of the program say that the criteria for lending are too limiting. Those companies that can meet the criteria, they argue, are already reasonably healthy and don’t need the program because they can already borrow at comparable rates directly from banks.
When will the money be available for nonprofits? That is unclear. The Federal Reserve is still finalizing the legal details and working on a list of eligible lenders. For more information, see the Fed’s Main Street Lending Program website.