Resources for Financial Relief for Nonprofits During the Coronavirus Pandemic
Your Part-Time Controller, LLC is dedicated to providing up-to-date information regarding the COVID crisis and new legislation that will affect nonprofits. Follow the links below to access resources that could help you. Would you take a moment to share your experience with us in a brief survey?
Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020 provides opportunities for financial relief for nonprofits in many ways. Two of the most significant programs are the expansion of the existing Economic Injury Disaster Loan and the establishment of the Paycheck Protection Program Loan Program. Visit the Small Business Administration (SBA) for additional information or click on the links below for descriptions of the programs or watch our webinar.
Paycheck Protection Program Loan (PPPL):
*Best to first contact the lending institution for which an organization has an existing deposit or loan relationship to confirm participation in the program. Working with your existing bank may save time in the application process.
PAYCHECK PROTECTION PROGRAM LOANS (PPPL)
Paycheck Protection Program Loans (PPPL) are low interest (1% loans) of up to the lower of $10 million or 2.5 times average monthly payroll to support nonprofits decline in revenue due to business shutdowns and other effects of the coronavirus pandemic. Loan proceeds can be used for (subject to certain limits and restrictions) payroll costs, employer group health care benefits, rent, utilities, and certain debt payments. Recipients may apply to have the loans forgiven to the extent of 8 weeks of such costs, to the extent that employees have not been terminated or subject to a reduction of pay of more than 25% (with certain exceptions).
Approved SBA lenders were permitted to begin accepting applications on April 3, 2020 to eligible organizations (for nonprofits- 501 (c) (3) and 501 (c) (19)’s with 500 or fewer employees). The lending institutions were not already to accept applications on April 3, and as of today, there are still some banks who have not started to accept applications and others like Wells Fargo who have stopped accepting applications.
Based on experiences of our clients, we are hearing of some banks requiring their own (different) sub-forms, questionnaires and certifications in addition to the Paycheck Protection Program Borrower Application. We have heard of some banks requiring their own calculator for “loan amount”. WHAT WE ARE LEARNING IS THAT BANKS MAY HAVE DIFFERENT REQUIREMENTS- CERTAINLY IT IS NOT ONE SIZE FITS ALL. We are also learning that some of the request’s banks are making are seemingly contradictory- EVEN WITHIN THEIR OWN FORMS!
We are advising clients to call their banker to clarify specific bank requirements. Further, to avoid unnecessary delays we are advising that nonprofits follow the directions provided by their bank very carefully and even after the applications and required paperwork is submitted, to check with their banker that all is in proper order.
We have had many questions during and after our webinar regarding information required in the PPP Borrower Application, Again, when in doubt, call your banker to get clarification. We recommend that you have all information contained in your application fully substantiated. Since the instructions and guidance are not very clear in many cases, you may need to make some judgements based on the information you had at the time of application. Therefore, we recommend you document the basis for all your conclusions. We recommend that you maintain a full and complete record of everything submitted to the bank.
Below are some general guidelines based on the Interim Final Rule for the PPP issued by the SBA on April 2, 2020 and the Instructions on the PPP Borrower Application form.
Loan Amount: this is the lesser of $10 million or 2.5x Average Monthly Payroll (plus net of EIDL advance- if received before 4/3/20)
Average Monthly Payroll: 12 months Payroll Costs (generally gross wages per payroll records), for all US based employees, capped at $100,000, plus employer portion of health insurance costs and retirement plans plus payment of state and local taxes assessed on compensation of employees. You should defer to your lender’s specific instructions and format.
Time Period: Per the SBA Interim Final Guidance Section III.2.e.i (page 8), the time period used for the loan calculator should be gross wages from the last 12 months (i.e. 4/1/19-3/31/20). However, Borrower Application Form Instructions indicate calendar 2019. You should defer to their lender’s specific instructions.
Deduction of Employee Salaries over $100k: Per the SBA Interim Final Guidance, Section III.2.g.ii (page 10/11): The compensation of an individual employee of an annual salary of $100,000, prorated as necessary is expressly excluded from the definition of payroll costs. The PPP Borrower Application Form Instructions potentially contradicts this saying “excluding costs (potentially insinuating payroll plus healthcare and retirement benefits) over $100,000 on an annualized basis for each employee”. You should defer to your lender’s specific instructions, as available, or use their best judgement.
Independent Contractors: Independent Contractors should not be included in the PPP loan calculation, per SBA Interim Guidance Section III.2.h. (page 11) “Do independent contractors count as employees for purposes of PPP loan calculations? No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.”
Applicant Ownership: For nonprofit organizations this can simply be marked “N/A”, there are no Owners. Alternatively, a nonprofit can list the Executive Director and note % Ownership as 0% and include the organization EIN in the box on that line. We’re being told that some online applications will not accept anything but a numerical character for this field, so this should be marked as “0” or defer to your lender’s specific instructions.
Number of Employees: Within the certifications of the PPPL Application, borrowers are asked (fourth certification) to provide documentation verifying the number of full-time equivalent employees on the applicant’s payroll. The application is vague as to the date but the certification questions seem to indicate 2/15/20. Additionally, within the answer to the “How much of my loan will be forgiven?” question on the “PPP Information Sheet” (Treasury.gov website), borrowers are told that they “have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between 2/15/20 and 4/26/20.” This also seems to support using 2/15/20 as the cutoff date. Again, have your client check with their lender or use their best judgement. You should defer to your lender’s specific instructions, as available, or use their best judgement.
Loan Forgiveness: There are no forms available for loan forgiveness. Borrowers are eligible for loan forgiveness equal to the amount they spend on payroll, interest on mortgages, rent, and utilities during the 8-week period after the origination date of the loan. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year, and by any reduction in pay of employee beyond 25% of their prior year compensation. To encourage employers to rehire any employees who have already been laid off, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
New Information: Faith Based Organizations- New guidance issued by SBA on 4/3/20: Generally Faith-Based organizations are eligible for EIDL and PPPL. As noted in the attached FAQ- Page 2, Question 3, “Churches (including temples, mosques, synagogues, and other houses of worship), integrated auxiliaries of churches, and conventions or associations of churches qualify for PPP and EIDL loans as long as they meet the requirements of Section 501(c)(3) of the Internal Revenue Code, and all other PPP and EIDL requirements. Such organizations are not required to apply to the IRS to receive tax-exempt status. See 26 U.S.C. § 508(c)(1)(A)
Economic Injury Disaster Loan (EIDL) and $10,000 Emergency Loan Advance
Private nonprofit organizations or 501(c)(19) veterans organizations with less than 500 employees affected by coronavirus are eligible for SBA’s Economic Injury Disaster Loan (EIDL) up to $2 million which provides vital economic support to help overcome the temporary loss of revenue. Permissible uses of the funds include providing sick leave, maintaining payroll to retain employees, rent or mortgage payments and repaying obligations that cannot be met due to revenue losses. The EIDL $10,000 loan advance funds will be made available within days of a successful application, and this loan advance will not have to be repaid.
Best Practice: Board Resolutions for EIDL & PPPL
Nonprofit management should discuss the implications of these programs with their Boards. Also, nonprofit management should check thier by-laws and/or Board policies to confirm if a Board Resolution is required for EIDL and PPPL. Generally, it is best practice for Boards to approve actions such as incurring debt and opening up bank accounts.
YPTC is dedicated to providing resources to help nonprofits everywhere. Would you take a moment to share your experience with us in a brief survey?
Disclaimer: Every situation and every nonprofit is different. The materials provided are not a substitute for accounting, consulting, financial or legal advice, but are for educational purposes only and should not be relied on. If you have any specific questions or want any further guidance, please reach out to your accountant, financial advisor, banker, or attorney for more information. YPTC does not accept responsibility for the accuracy of the information, nor any interpretation or application by the reader of the information contained herein.