Fed opens 'Main Street' loan program to nonprofits, eases terms

Credit: REUTERS/BRENDAN MCDERMID

Adds details, background

July 17 (Reuters) - The U.S. Federal Reserve on Friday opened its "Main Street" loan program to nonprofits, allowing education, health, social service and other groups with as few as 10 employees to tap central bank funding.

The announcement extends central bank lending power to an entirely new sector of the economy, and one that may face unique financial struggles during the coronavirus pandemic and the likely dip in charitable donations. Nonprofits are major employers and often core institutions in local communities.

The loan terms were broadened significantly from an initial proposal floated by the Fed in mid-June, including lowering the employee threshold from 50 workers and easing some revenue and operating margin requirements developed as a way to rate the financial health of nonprofit organizations.

"We have listened carefully and adapted our approach so that we can best support them in carrying out their vital mission,” Federal Reserve Chair Jerome Powell said in a statement.

The $600 billion Main Street program was announced in March as one of the Fed's efforts to get credit beyond the financial firms it usually works with and into the “real” economy. The aim is to keep companies stable through the coronavirus pandemic.

It has gotten off to a slow start.

Its first loans were only disbursed in the last week, and have so far totaled just $12 million. Critics say the five-year loans, despite initial payment deferrals, are not on liberal enough terms to help struggling companies, and aren’t needed by healthy ones. The Fed is charging interest of 3 percentage points over a reference rate, and the loans -- whether to companies or nonprofits -- must be made by a participating bank willing to keep 5% of the loan on its own books as a way to spread the risk.

(Reporting by Howard Schneider Editing by Chizu Nomiyama and Jonathan Oatis)

((howard.schneider@thomsonreuters.com; +1 202 789 8010;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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