Nonprofit Corporations and the CARES Act Payment Protection Program
On Friday, March 27, 2020 Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Small Business Administration’s section of the CARES Act applies to nonprofits, with an allocation of $349 billion dollars to keep workers at small businesses and nonprofits employed amid the economic downturn and the COVID-19 pandemic.
The loan amounts will be forgiven as long as: 1) The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and 2) Employee and compensation levels are maintained. At this time, your bank may not be accepting applications for the Paycheck Protection Program because they are waiting for clearer guidance from the SBA. New updates are coming from the SBA regularly.
The Paycheck Protection Program provides nonprofits with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
Will our CARES Act loan be forgiven?
Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
Nonprofits are eligible for the CARES Act
Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors— are eligible for the CARES Act loan. Businesses with more than 500 employees are eligible in certain industries.
When may my nonprofit organization apply?
Starting April 3, 2020, small businesses and sole proprietorships can apply. Nonprofit organizations are encouraged to apply as quickly as they can because there is a funding cap.
How does my nonprofit organization apply for the CARES Act?
Your nonprofit can apply for the CARES Act through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. All loans will have the same terms regardless of lender or borrower. You may visit the Treasury’s website to download the application form. A list of participating lenders as well as additional information and full terms can be found at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp. You may also wish to visit the Treasury’s website for information regarding the Payment Protection Program.
CARES Act loan application clarifications
The CARES Act loan application is designed with small businesses in mind, which can cause confusion for nonprofit organizations. Here are some clarifications that might help you during the application process:
Name of Primary Contact
Who signs your loan application depends on the structure of your organization and your bylaws. It should be someone in a leadership position, for example your Executive Director, Chief Executive Officer, or Board Chair.
List of Owners
501(c)3 nonprofit organizations are not privately owned by individuals. In this box, you should enter: None – 501(c)3 Charity
Note:
The Paycheck Protection Program is implemented by the Small Business Administration with support from the Department of the Treasury. For additional information, read the Treasury’s Payment Protection Plan Information Sheet.
What information does my nonprofit need to provide to apply for CARES Act?
Banks may require additional documentation from nonprofits to apply to the CARES Act. Here is a sample list of what you might need based on conversations with our bank:
• Articles of incorporation;
• Bylaws;
• Drivers' licenses for primary application signer;
• IRS Form 990;
• Payroll summary report with corresponding bank statement (If not available, employee pay stubs as of February 15, 2020 with corresponding bank statement and breakdown of payroll benefits);
All nonprofits applying to the CARES Act loan programs must make sure they have all the necessary documentation and triple-check their application before turning it in to the SBA. Any organization that needs to submit additional documentation after the fact will likely be pushed to the end of the line and may be far less likely to get funding.
Our nonprofit attorneys are here to help!
If you are a tax-exempt organization and have questions, our experienced attorneys can help. Please contact Nonprofit Attorney Jonathan Grissom. During this challenging time, we are continuing to provide legal services.