On March 27, 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act. The $2 trillion CARES Act includes emergency relief for individuals, businesses, medical centers and nonprofits. There are some important time-sensitive implications for 501(c)(3) nonprofit organizations that we want to bring to your attention. You may want to act quickly to achieve optimal results. Here are a few key takeaways:
• 501(c)(3) organizations with fewer than 500 employees are eligible to apply.
• The 7(a) loan is a working capital loan to cover salaries, paid sick and medical leave, insurance premiums, rent, mortgage interest and utilities. This fund has been expanded to help organizations whose revenues have been reduced as a direct result of the COVID-19 pandemic.
• The loan repayment terms are very attractive. In many cases, a significant majority of the loan will be forgiven based on certain conditions that include maintaining staffing levels.
• The PPP loan is intended to be a “job retention” loan for small businesses and nonprofit organizations. It provides capital to small organizations so they can retain their employees.
• The loan amounts are intended to pay up to 8 weeks of payroll costs, including benefits.
• In addition to payroll costs, the loan may also be used for mortgage payments (interest only, not principal), rent and utilities.
• Although it is a technically a loan program, if at least 75% of the loan funds are used to cover payroll costs, the loan will be fully forgiven entirely. In this regard, it is a grant, not a loan to the nonprofit.
• The maximum loan amount is based on the nonprofit’s monthly payroll expenses. A nonprofit can borrow up to 2.5 times the organization’s average monthly payroll expense for the prior 12-month period, but no more than $10M.
• The application must be submitted to a bank or other SBA-certified lender.
• Loan terms are the same regardless of lender. Interest rate for the two-year loan is fixed rate of 1%. Payments are deferred for six months. No collateral or personal guarantees will be required.
• Nonprofits intending to apply for the loan should gather payroll tax reports (Forms 940, 941 and/or 944) and any other documentation that shows the organization’s last 12 months of payments made by the organization for employee wages, benefits (paid leave, health and retirement) and taxes.
To learn more, you can also download valuable information about CARES Act implications for nonprofits from Charles Schultz, president of Crescendo Interactive, here.
For more information on the provisions above and others that may have a positive impact on your organization during this challenging time, we recommend that you reach out to your tax advisors, your board members with applicable expertise on loans and tax advice, and your relationship contact at your financial institution. Your organization will apply for the loan through your financial institiution.