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CARES Act: 9 Things to Know About the Payroll Protection Program for your Nonprofit

Assistance is available to nonprofit organizations in need. Here's what you need to know about the CARES Act and the Payroll Protection Program to apply starting Friday, April 3.

On March 25, 2020, the United States Congress passed the Coronavirus Aid, Recovery, and Economic Security Act (CARES Act) as a measure to provide economic stimulus to small businesses and nonprofit organizations in need. The CARES Act has valuable provisions for your nonprofit organization. Here are nine things you need to apply now to support your organization through this crisis.

What is the CARES Act and Why Do We Need It?

As COVID-19 rapidly spread throughout the world, medical experts and government officials quickly recognized that without a vaccine or adequate testing our only immediate solution was self-isolation. In response, governments everywhere asked their citizens to stay inside in an effort to prevent the deaths of hundreds of thousands of vulnerable people.

That grim reality meant an almost overnight closing of many businesses, and many conferences and large events. For San Diego Refugee Tutoring, we were planning on our first ever Gala in April and had to decide to postpone it. The WordPress Foundation (also a 501c3) decided to cancel WordCamp Europe which was scheduled for June 2020 originally.

For many nonprofit organizations, cancellation of events means an immediate and detrimental hit to fundraising. For some it might mean they must lay off staff or even close their doors completely.

Self isolation means empty city streets too, and empty city streets mean no revenue for brick and mortar shops and businesses.

Faced with this reality, the U.S. government worked on a stimulus bill called the CARES Act (read the whole bill here). This provides many things from checks to individuals, to emergency staffing for state workers, to repealing excise taxes for alcohol. The provision that is most relevant for nonprofits though is called the “Payroll Protection Plan”. This allows for up to 349 million dollars to be loaned to  small businesses and nonprofit organizations to help them continue to make payrolls and keep the lights on until people can get outside again and start spending again.

Like all legislation, it’s not perfect, but it does make funds available to you immediately. If your organization is facing dire circumstances, it’s time to act now so you can get the funding you need to make it through this crisis.

A quick disclaimer: I am not a tax lawyer or legal expert, but I know how to do research. Each of the items below have citations from multiple sources including the CARES Act itself. Regardless, please do your due diligence and consult with your attorney and/or accountant appropriately.

With that in mind, here are 9 things you need to know about the CARES Act.

1. Funding is Limited so Apply Immediately

Section 1102(b)(1) of the CARES Act says:

“…the amount authorized for commitments for general business loans authorized under section 7(a) of the Small Business Act (15 U.S.C. 636(a)), including loans made under paragraph (36) of such section, as added by subsection (a), shall be $349,000,000,000;”

While the entire CARES Act has over $2 trillion dollars of relief and aid in it, the part that is most targeted at nonprofits is the “Paycheck Protection Program.” That is currently limited to $349B. While that sounds like a big number, the folks at Vanderbloemen did the math:

In the United States, there are over 5.8 million small businesses with 500 employees or less. There are approximately 300,000 churches and 1.5M non-profits in America. If we just look at small businesses, 88% of small businesses have 20 employees with an average salary of $45,857. This salary does not include benefits and other payroll costs covered under the PPP.

5.8M Small Businesses X 88% X 20 employees X 2.5 months of $45,857 salary/12 months = $975B

While a $350B appropriation to support employers with under 500 employees sounds like a lot of money (and it is), $350B is not a big enough pocketbook to cover the potential payouts if every small business applies.

All that means is that as soon as funding opens up on Friday, April 3 there will be a race of applications. Once the funding is out, there’s no guarantee that more funds will follow at all.

2.How to Prepare and Apply for Paycheck Protection Program

The easiest way to apply quickly is to be prepared. So how can you get ahead of the game?

The Small Business Association is overseeing the distribution of these loans, so let’s see what they have to say about this:

“You can apply 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 in the program.”

This means, to apply, contact your bank today to find out if they are an SBA 7(a) lender and get details. Additionally, here’s a few resources to give you a head start:

3. Your Entire Loan Could be Forgiven

Section 1106 of the CARES Act is entirely about Loan Forgiveness under the Payroll Protection Program. It explains how documenting how you spent your loan on wages, mortgage, and/or utilities will allow you to get your loan forgiven.

Essentially, if you can prove with documentation that you spent the money on mortgage, utility, or wages for your employees that were already full-time employees of yours before February 15, 2020 then you can expect a large portion of that loan to be entirely forgiven.

On this the SBA says:

“The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities”

Vanderbloemen has an excellent explanation of how to calculate whether your loan can be forgiven.

4. If you must repay, it’s very easy

In the event that not all of your loan is forgivable there should be a relatively small amount left to repay. The great news is that you’ll have 2 years to repay the loan, the interest rate is only 0.5% and your first payments can be totally deferred for the first 6 months. Again, the SBA is the source on that.

5. It is intended for payroll and operations only

Section 1102 explains that the loans are made explicitly for the purpose of paying wages, mortgage payments, and/or utility payments. It’s meant to keep your lights on and nothing else.

The Treasury Department also provides this excellent summary of the PPP. In it they say the funds are only intended for:

  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

6. Your Board Members incur no risk with this loan

With many business loans, owners or board members incur some personal liability with the loan. That is not the case with the PPP at all.

According to Section 1102(a)(2)(36)(F)(v) of the bill:

“The Administrator shall have no recourse against any individual shareholder, member, or partner of an eligible recipient of a covered loan for non-payment of any covered loan, except to the extent that such shareholder, member, or partner uses the covered loan proceeds for a purpose not authorized under clause.”

7. The Charitable Giving Incentive can help with your fundraising

One way we can all get through this crisis is not by hoarding, but by being more generous than ever before. The bill gives additional incentives for doing just that.

Section 2204 and 2205 explain that the limits to above the line charitable giving tax deduction will be raised significantly for both individuals and corporations. With these temporary provisions, individuals can claim deductions on up to 50% of their total gross adjusted income. The limit for corporations is 25%.

This suspension of limitations could prove to be a greater incentive for corporations to be generous in 2020. If you’ve never considered doing a corporate giving campaign, now might be a great time to start.

For example, some corporations are enhancing their employee matching programs. Apple, for example, says:

“We are matching our employee donations two-to-one to support COVID-19 response efforts locally, nationally and internationally.”

8. Where can I get local resources for help with all of this?

The best local advice can be provided by SBA approved lenders, of which there are thousands across the county.

The SBA provides a search tool to find local resources. I searched for a San Diego zip code and found this excellent local resource that supplies remote consultations.

The SBA also lists the top 100 SBA 7(a) Lenders here:
https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders

9. There is more funding available than just what the CARES Act provides

Because the funding available for these loans is a relatively small amount, it would be helpful to have a “plan B.” Many corporations and banks are stepping up to provide relief funding. It’s important to research these thoroughly to understand what the requirements are, but doing a simple search you can come across many organization willing and able to help at this time.

Here’s just a quick list that I found:

Assistance is available if you are in need!

If you are facing a financial crisis, the whole message we’re sending you today is: There’s help! You don’t need to shutter your doors. Use your time and effort to get the funding you need to make it through. If you are seeking financial assistance through the CARES Act or other opportunities, reach out to us, we’d love to hear about your journey to help all the organizations that we interact with better through this crisis.

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