In response to the financial damage related to the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Among its other provisions, the CARES Act enhanced lending programs and offerings for not-for-profit organizations, which have particularly been affected by the stay-at-home orders and financial uncertainty caused by the coronavirus disease.
There are several loan programs available that may benefit your organization. We have compiled some frequently asked questions to help capture information on how your not-for-profit can take advantage of the relief provisions.
What Are My Options for Capital Assistance?
The type of capital assistance available for COVID-19 response depends on the size of your organization. Below is a very high-level overview of the options that are up and running now:
|PROGRAM NAME||PAYCHECK PROTECTION PROGRAM||ECONOMIC INJURY DISASTER LOAN||MAIN STREET NEW LENDING PROGRAM||TROUBLED DEBT RESTRUCTURING|
|TYPE OF PROGRAM||Forgivable Loan||Immediate Capital Assistance||Low-interest rate loans||Short-term loan relief|
|ELIGIBILITY||500 or fewer eligible employees||500 or fewer eligible employees||10,000 or fewer employees||Determined by lender|
|AVAILABLE FUNDS||Up to $10 million||$10,000 immediate advance, $2 million total||$25 million||Lender-dependent|
|TERMS & CONDITIONS||100% forgiveness if used on eligible employee expenses, no more than 25% of loans used on non-payroll costs||Loans can be rolled into PPP loan||Restrictions on use of loan to pay down debt and stock buy-backs, employee retention requirements||Lenders asked to provide up to 6 months of short-term loan repayment modifications|
|WHERE TO APPLY
||Advances: SBA.gov; Loan: SBA-approved lender
||Existing federally regulated lender
||Existing federally regulated lender
The CARES Act also funded relief for medium and larger organizations through the Department of Treasury’s Exchange Stabilization Fund (ESF). Further details on the programs available through the ESF are expected.
How Do I Access the Paycheck Protection Program?
The Paycheck Protection Program (PPP) is an expansion of the Small Business Administration’s 7(a) loan program with more relaxed lending requirements. For example, they do not require personal guarantees, which makes them particularly attractive for not-for-profit organizations. Amounts are available up to the lesser of 2.5 times your organization’s average monthly payroll costs or $10 million.
Not-for-profit organizations applying for the loan must have 500 or fewer eligible employees and will need to demonstrate that they maintain their workforce level in order for the loan to be forgivable. Forgivable loan proceeds must also go toward qualifying expenses, including:
- Payments for salary, wage, commission, or similar compensation, including unemployment benefits
- Payments for vacation, parental, family, medical, or sick leave;
- Allowance for dismissal or separation;
- Payments required for the provisions of group health care benefits;
- Payments of any retirement benefit, such as a the Employer 401(k) match; and
- Payment of state or local tax assessed on the compensation of employees (this includes state unemployment benefits).
Applicants for SBA loans apply through a SBA-approved lender. Time is of the essence, however, as funding for PPP loans was already depleted and refunded once. For further questions on the details of PPP loans, including the qualifications for PPP loan forgiveness, please see our FAQ document here.
Am I Eligible for an Economic Injury Disaster Loan?
An SBA 7(b) loan called the Economic Injury Disaster Loan (EIDL) is also an option for not-for-profits with 500 or fewer eligible employees and provides expedited relief. The CARES Act expanded the SBA’s EIDL program, and as President Trump declared the U.S. a COVID-19 virus disaster area, the EIDL is available for most organizations.
Not-for-profit organizations can apply for EIDL loans up to $2 million to cover bills that cannot be paid due to the COVID-19 impact. Interest rates are 2.75% for not-for-profit loans, with $10,000 emergency grants available within 72 hours of applying for the EIDL program, even if the organization is eventually denied the EIDL loan. Personal guarantees are not required for loans up to $200,000. For further information on the details of the program, please see our FAQ document here.
Should My Organization Apply for the Main Street Lending Program, Too?
Demand for PPP and EIDL loans has been extremely high, so while it is encouraged that smaller not-for-profit organizations apply for the SBA programs, they may also want to consider the lending relief afforded by the Federal Reserve’s Main Street Lending Program (MSLP) in the event the second round of funding is also quickly depleted. It is important to note that Main Street loans are not forgivable. They must be repaid in full.
There are two loan facilities offered under the Main Street Lending Program, the Main Street New Lending Facility, and the Main Street Expanded Loan Facility. Both facilities offer favorable loan terms including:
- A four (4) year maturity
- Interest rate SOFR (Secured Overnight Financing Rate, currently 0.01%) plus 250 to 400 basis points
- Origination fee of 100 basis points
- Principal and interest payments will be deferred for one year
- Minimum loan of $1 million
- Prepayment permitted without penalty
Main Street New Loan Facilities are available for organizations with 10,000 or fewer employees, and less than $2.5 billion in annual revenues. Maximum loans are the lesser of $25 million, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA).
As the name would suggest, the Main Street Expanded Loan facility is available to be added to existing MSLP loans up to $150 million or 30% of the borrower’s undrawn bank debt, or six times EBITDA. For more details on the MSLP, see our article here.
Does My Organization Need to Consider Troubled Debt Restructuring?
For not-for-profit organizations with existing lending relationships, another option that might be on the table during this difficult time is troubled debt restructuring. Interagency guidance encouraged banks and other lenders to work with borrowers to make short-term modifications to loan terms. Although it is not yet clear whether funds from the CARES Act will be used to assist lenders in being able to support these programs, not-for-profit organizations may want to have the troubled debt restructuring conversations with their federally regulated financial institutions. The interagency guidance is encouraging lenders to offer short-term modifications to loan payments of up to six months.
We expect further details on federal support for troubled debt restructuring in the coming weeks. If you have specific questions around how your organization can restructure its debt, you can also reach out to our credit risk services team here.
Stay Tuned for More Information
Details on the relief provisions and funding for organizations continues to emerge. If you have any questions, please contact us.
Looking for more COVID-19 resources? Visit our resource center for expertise on impacts to expect and how your business can respond.
Bernie Kaplan is the Managing Director of the Retirement and Benefit Plan Services Group in the Boston office. He can be reached at 617.761.0541 or email@example.com. Bernie consults on a wide variety of employee benefit topics including 403(b) plans, qualified retirement plans, executive compensation, nonqualified deferred compensation, section 409A and health care reform.