Federal Coronavirus Assistance for Nonprofits
For many nonprofits, the coronavirus pandemic has posed an unprecedented financial challenge. Even as we contend with the explosion of need in the communities we serve, many of us are seeing revenue sources dry up, leaving us caught in the middle.
The good news is that nonprofits are eligible for billions of dollars in aid in the $2.2 trillion CARES Act passed in late March. But be forewarned: The application process is complicated, the timelines are tight and nonprofits will be competing for those dollars with the private sector.
United Way of Lancaster County board member Lynn Mills is president of the accounting firm The Walz Group. On Wednesday, we spoke with her to learn more about the assistance available to nonprofits. The following FAQ is based on that conversation and guidance published by the U.S. Small Business Administration.
Please note that this is intended as a general introduction only. Organizations should reach out to their own legal and financial partners for further details and to help guide their decisions. In addition, Mills strongly advises nonprofit leaders to talk to their lenders and other creditors. Depending on circumstances, they may be able to negotiate temporary payment deferrals, extend lines of credit or make other arrangements.
What financial aid is available to nonprofits affected by the pandemic?
There are two main programs:
- The Paycheck Protection Program, or PPP;
- The Economic Injury Disaster Loan program, or EIDL.
Both are run by the U.S. Small Business Administration. The EIDL is part of the SBA's 7(b)(2) program and predates the crisis. The PPP is new, created by the CARES Act.
What is the Paycheck Protection Program?
Authorized by the CARES Act, it provides $349 billion for loans to organizations to help them maintain their staffing through the economic downturn resulting from the pandemic. Both nonprofits and for-profits are eligible.
The SBA released the PPP application on Tuesday, March 31; Applications will be accepted beginning Friday, April 3. Time is of the essence, Mills said.
How does it work?
Loans can be up to 2.5 times an organization's average monthly payroll costs, up to a maximum of $10 million. The funds may be used to cover payroll, rent, utilities and interest on mortgages and certain other pre-existing debt.
Importantly, if employers maintain staffing and pay levels, the loan can be forgiven, turning it into a de facto grant.
Eligible payroll costs include wages and salaries, employer-paid health and retirement benefits, vacation pay and most sick-leave payments. Payroll and income taxes are excluded, and salary coverage is capped at $100,000 per year.
Calculating the amount is complicated, Mills said. Your accountant can make sure you've counted everything that qualifies and left out what doesn't. Any portion of the loan that isn't forgiven has to be paid back over 2 years at 0.5% interest.
How do organizations apply?
Organizations seeking PPP loans must apply through a participating financial institution, including existing SBA 7(a) lenders, banks and credit unions. Applicants should ask their local lender if they’re participating, the SBA says.
The SBA has released a sample loan application form. Applicants should be prepared to provide relevant supporting documentation in full: Individual employee salary data, payroll tax reports, health insurance and retirement funding.
ECONOMIC INJURY DISASTER LOANS
What is the EIDL program and how does it work?
The EIDL provides working capital to offset revenue lost due to a disaster. The CARES Act stipulates that the coronavirus pandemic qualifies. It also waives the requirement that organizations not have access to credit elsewhere.
Unlike the PPP, organizations apply directly to the SBA. They can borrow up to $25,000 unsecured, and up to $2 million with collateral. Eligible uses include rent and other fixed expenses, payroll, and accounts payable. The interest rate for nonprofits is 2.75%, with a loan term of up to 30 years.
Mills highlights one unusual and important provision: Under the CARES Act, applicants for EIDL funding can request a $10,000 emergency advance; and, provided they certify they are eligible, they can receive it even if the SBA rejects their loan applications. The turnaround time is just 3 to 5 business days, and the advance need not be paid back, making it essentially a grant.
How do organizations apply?
Go to the SBA's Covid-19 relief page, covid19relief.sba.gov, and fill out the forms. It's free, and organizations have the option not to accept loans even after they're approved.
Applying online is recommended, but the SBA suggests downloading printed forms and filling them out beforehand, as a guide.
Note that the application forms are geared toward private sector businesses, not nonprofits. Here's what nonprofits will need to submit:
- Application (paper version: Form 5);
- Tax Information Authorization (paper IRS Form 4506T). This authorizes the Internal Revenue Service to provide your tax returns to the SBA for review;
- The organization's most recent federal tax return (e.g., a Form 990);
- Up-to-date documentation of organization's income and expenses since its most recent tax return;
- A list of outstanding liabilities, such as mortgages or equipment loans (paper Form 2202).
Unlike nonprofits, private companies must submit their owners’ current financial disclosures. If a nonprofit is owned by a for-profit, it might have to file that information, too; an accountant can help determine if that's the case, Mills said.
Incomplete applications go to the back of the line, so organizations should make every effort to ensure their submissions are through and complete.
Besides the EIDL and PPP, what else is out there?
Under the CARES Act, 501(c)3 organizations that self-fund their unemployment insurance can be reimbursed 50% of what they pay to their states to cover unemployment for employees they laid off due to the coronavirus pandemic.
The law also allows employers affected by the pandemic, and who do NOT use the PPP, to claim an employee retention tax credit. It's equal to 50% of wages paid from March 12 to the end of the year, up to $10,000 per employee.
For more information
- Payroll Protection Program: https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp
- Economic Injury Disaster Loan (online application portal): https://covid19relief.sba.gov/#/
- The CARES Act (full text): https://www.congress.gov/bill/116th-congress/house-bill/748/text
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