Nonprofit organizations have been hit hard by the coronavirus pandemic. Under the SBA’s existing 7(b)(2) program, most nonprofits organizations were eligible for disaster assistance in cases of emergency or ‘economic injury’ which results in the inability of a nonprofit organization to pay its necessary operating expenses. The CARES Act defines the coronavirus pandemic as and economic injury.
One of the key provisions of the CARES Act is the $349 billion set aside for small businesses through federally backed loans under an expanded and modified Small Business Administration loan guaranty program call Paycheck Protection Program. SBA loans that are normally intended for for-profit organizations have been expanded to include nonprofits under the CARES Act.
Permitted uses of the loan include:
The terms of the loan are as follows:
The loan amount will be 2.5 times the average monthly payroll costs and capped at $10 million. If your organization took an Economic Injury Disaster loan after January 31, 2020, it may be able to refinance the loan into the program loan. How much can be refinanced will still be based on the average monthly average payroll costs.
Nonprofit organizations with tax exempt status under Section 501(c)(3) and 501(c) (19) with 500 or fewer employees (must have been in existence on March 1, 2020) are eligible for the Paycheck Protection Program. If your nonprofit owns a for-profit entity, your for-profit entity is also eligible for loans under the new Paycheck Protection program, as long as it meets other SBA eligibility requirements.
Your nonprofit must certify that:
It is important to know that these loans are underwritten by the impact of the coronavirus and not your organization’s ability to repay the loan. Your loan approval may be based solely on your credit score or other parameters set by the SBA. Your financial institution should provide you with accurate information.
If you meet eligibility requirements, your next steps should be:
To be eligible, first, make sure your loan use is restricted to permitted uses during the 8-week period of receiving the loan. The amount of the loan that could be forgiven cannot exceed the principal. That means that you are still liable for accrued interest.
There is always ‘a catch’ – the amount that could be forgiven can be reduced:
Payroll Taxes Payment Delay: The CARES Act allows your nonprofit to delay paying payroll taxes from March 27, 2020, to the end of the year. However, half of the amount of payroll taxes incurred during this time period must be paid by December 31, 2021 and the rest by December 31, 2022. Your organization is not eligible if your organization obtained a loan and the loan is forgiven under the Paycheck Protection Program.
Advance Loans for ‘Small’ Nonprofits: The CARES Act includes ten billion dollars for the federal Small Business Administration to provide emergency grants (Emergency Economic Injury Disaster Grants) through December 31, 2020. Small nonprofits are eligible for loan advancements of up to $10,000 within three days of submitting a loan application. Your nonprofit will be required to certify under penalty of perjury that it meets the eligibility requirements.
Industry Stabilization Fund: The CARES Act sets aside $500 billion in loans and investment for industries adversely affected by the coronavirus pandemic. This includes nonprofits that are not eligible for the Paycheck Protection Program. These funds are intended to be used for employee retention and the restoration of compensation and benefit levels.
We strongly recommend that you consult your attorneys, financial advisors and authorized lender to discuss this opportunity and how you can take full advantage of the CARES Act.
Written by Franklin Asongwe