Please note that this legal alert is general legal information and not legal advice, and it does not create an attorney-client relationship. If your organization needs legal advice, contact us for information on how to apply for services or find our applications for legal services on the Wayfind site.
On March 27, 2020, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This law offers nonprofits and small businesses several sources of economic support. We have summarized the two major loan programs available to nonprofit organizations and small businesses below.
Please check our website frequently for updates. If you need COVID-19 related support for your nonprofit and/or small business during this time, please contact us at firstname.lastname@example.org.
Paycheck Protection Program (PPP)
The Small Business Administration (the “SBA”) is administering emergency small business loans to incentivize small businesses to keep their employees on the payroll. 501(c)(3) tax-exempt nonprofits and for-profit businesses are eligible for this loan/grant opportunity.
- Loan Amount: The amount will be calculated to be 250% (2.5 times) the business’s average monthly payroll amount.
- Eligibility: Entities that have been operating as of February 15, 2020, and have 500 or fewer employees (including full-time and part-time employees who are not FTEs).
- Loan Usage: Loan funds can be used to cover payroll, including health insurance costs and other payroll-related costs, rent, mortgage interest, utilities, and interest on debt taken out before February 15, 2020. These funds are to cover expenses incurred during the first 8 weeks after the loan originates. Note that federal payroll taxes are specifically excluded, and thus the loan cannot be used to pay FICA or federal income taxes, and at least 75% of the loan amount must be used for payroll expenses.
- Loan Repayment & Forgiveness: Loans covering the expenses listed above are forgivable if 1) the funds are used to pay for payroll, rent, utilities, and interest payments on mortgages; and 2) the business retains its employees during the 8-week loan period, paying the employees their normal salaries.
- How to Apply: Nonprofits, small businesses, and sole proprietors can apply as early as April 3, 2020, depending on their bank. Independent contractors and people who are self-employed can apply on April 10, 2020. Each bank will have its own application process and timing. The Treasury has a sample application on their website that you can use to preview the type of questions banks will include on their application. Funds are first-come, first-serve.
Please visit the SBA’s website for more information on how to apply for a loan.
Economic Injury Disaster Loans (EIDL)
The CARES Act expands SBA’s current Economic Injury Disaster Loans Program and relaxes several eligibility requirements.
- Loan Amount: Up to $2 million.
- Eligibility: Loans are now available to nonprofits with 501(c)(3) tax-exemption and businesses that have suffered a substantial economic injury and have up to 500 employees.
- Emergency Advance: Under EIDL, applicants can request an emergency grant of up to $10,000, which is then subtracted from the loan amount. Applicants do not need to repay the $10,000 grant even if their loan application is denied. If an applicant also applies for the PPP, the amount forgiven under the PPP will be decreased by the $10,000 grant. The legislation states that applicants are supposed to receive these emergency funds within three days of filing their application, but it will likely take longer than three days. Note: we think this is the fastest and easiest way to get cash in hand.
- Loan Usage: Loans may be used to pay payroll, debts, accounts payable, and other expenses
- Loan Repayment: For nonprofits impacted by COVID-19, interest rates for EIDL are 2.75%. For small businesses, interest rates are 3.75%. Long-term repayment plans, up to 30 years, are available based on a case-by-case determination from the SBA.
- How to Apply: Nonprofits and small businesses can apply online at any time. Please visit the SBA’s website to apply for disaster loan assistance.
Charitable Giving Incentives
The CARES Act also provides incentives for individuals to give to public charities by increasing the deductible amount for an individual’s contribution to 100% of the individual’s adjusted gross income, for people who itemize their income tax return filings. For individuals who take the standard deduction, the Act creates a $300 partial above-the-line deduction for cash contributions to public charities.
Practical tips on preparing for the loan application
- Check SBA’s website frequently for more information
- Review Treasury’s PPP Sample Application and EIDL online application (as of April 1, 2020)
- Organize the organization’s documents:
- Financial Statements:
- W3 Form: Transmittal of Wage and Tax Statements
- Tax returns for 2017, 2018, and 2019
- If newly incorporated: balance sheet or income statement or statement of operating income and expenses
- Income statement for 2020
- Draft a statement explaining the organization’s situation and a proposal of how the organization intends on using the funds
Note: This Excel spreadsheet template may assist in calculations for the PPP The Jewish Federations of North America, Payroll Protection Loan Calculator (4/1/20).
- Organizational documents as applicable to the business entity:
- Certification of incorporation and certificate of formation (you can look these up on the SOS website)
- Master business license and other licenses
- Operating agreement
- Articles of incorporation and certification of formation (you can look these up on the SOS website)
- Master business license and other licenses
- IRS 501(c)(3) determination letter
- Meeting minutes with board vote to approve borrowing, if required under bylaws.
- Sole Proprietor:
- A statement reflecting income and operating expenses
- Determine who is authorized to create a debt for the organization/business or make legally binding decisions on behalf of the organization/business.
- Check governance documents (e.g., articles of incorporation) and bylaws to determine approvals needed to submit the loan application. The board may need to make a decision or empower the Executive Committee or Executive Director to act.
- Financial Statements:
- Consult and coordinate with the organization’s bank
- Check if the organization’s bank is an SBA approved lender
- Bank may require additional documents
- Review the loan options and determine which loan is in the best interest of the business/organization
- Prepare a file/document for loan forgiveness application:
- Track all expenses
- Keep all documents used in support of the application
- Consider other forms of relief, maybe the PPP and EIDL are not in the best interest of the business or organization:
- Paid Family and Medical Leave and payroll tax credit under the Families First Act
- Deferral of employers payroll taxes
- Employees retention credit
- Expanded unemployment insurance
Resources for more information on CARES Act
- Dept. of Treasury page on PPP – Check this website for latest information from the Treasury on PPP. This page gets updated frequently.
- Small Business Administration page on PPP – Check this website for latest information from the SBA. This page gets updated frequently.
- The Jewish Federations of North America Payroll Protection loan calculator (4/1/20) – This Excel spreadsheet template may assist in calculations for the PPP.
- ICA COVID Resource – summary and comparison of the loan programs
- COVID-19 Survival Guide
- Paul Weiss COVID-19 Relief Center
- List of SBA Lenders
- Nonprofit Quarterly: How nonprofits can utilize federal law
- Payroll Protection Loans for small businesses
- WSGR: COVID-19 Tax Relief: Congress Enacts Federal Income Tax Relief for Businesses
- WSGR: Tax Relief Under the CARES Act
- WSGR: The CARES Act: SBA Size and Affiliation Issues for Loan Programs
- WSGR: The CARES Act: A Summary of Loan Programs
- SBA Resource Guide
- Jewish Together: Loan information
Our COVID-19 resources page also contains a list of resources for nonprofits and small businesses related to coronavirus.