Overview of CARES Act Resources for Nonprofits in Response to COVID-19
The CARES Act (passed on March 27, 2020) includes a number of different provisions that offer resources for nonprofit organizations.
Here is a flowchart produced by the House Committee on Small Business on available loan programs.
Here is a summary of the relevant nonprofit resources, as summarized by the National Council of Nonprofits:
1. Paycheck Protection Program (PPP) Loans (emergency SBA 7(a) loans): Creates an emergency loan program providing loans of up to $10 million for eligible nonprofits and small businesses, permitting them to cover costs of payroll, operations, and debt service, and provides that the loans will be forgiven in whole or in part under certain circumstances.
- General Eligibility: Available to entities that existed on February 15, 2020 and had paid employees or paid independent contractors.
- Nonprofit Eligibility: Available for charitable nonprofits with 500 or fewer employees (counting each individual – full time or part time and not FTEs). The law does not disqualify nonprofits that are eligible for payments under Title XIX of the Social Security Act (Medicaid), but does require that employees of affiliated nonprofits may be counted toward the 500 employee cap, depending on the degree of control of the parent organization.
- No Personal Guarantee: No personal guarantee or collateral will be required in securing a loan.
- Loan Amount: The lesser of $10 million or 2.5 times the average total monthly payroll (including benefits) costs from the one-year period prior to the date of application.
- Loan Use: Loan funds can be used to make payroll and associated costs, including health and retirement benefits, facilities costs, and debt service.
- Loan Forgiveness: Employers that maintain employment for the eight weeks after the origination of the loan, or rehire employees by June 30, would be eligible to have their loans forgiven, essentially turning the loan into a grant.
2. Economic Injury Disaster Loans (EIDL): Creates SBA emergency grants for eligible nonprofits and other applicants with 500 or fewer employees enabling them to receive checks for $10,000 within three days.
3. Employee Retention Payroll Tax Credit: Creates a refundable payroll tax credit of up to $5,000 for each employee on the payroll when certain conditions are met. The entity had to be an ongoing concern at the beginning of 2020, experienced a whole or partial shutdown, and had seen a drop in revenue of at least 50 percent in the first quarter compared to the first quarter of 2019. The availability of the credit would continue each quarter until the organization’s revenue exceeds 80 percent of the same quarter in 2019. For tax-exempt organizations, the entity’s whole operations must be taken into account when determining eligibility. Notably, employers receiving Paycheck Protection Program loans would not be eligible for these credits.
4. Delayed Payment of Payroll Taxes: Allows employers to delay payment of the employer portion payroll taxes in 2020; payable in equal halves at the end of 2021 and 2022.
This chart from the National Council of Nonprofits provides a comparison of three loan programs — PPP, which is for organizations with fewer than 500 employees, provided through local financial institutions; EIDL, which is processed by the SBA; and a mid-size loan program, which is provided through local financial institutions for organizations with between 500-10,000 employees.
Payroll Protection Program
Download a sample application to determine what information you will need to apply.
The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
Fully Forgiven: Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Must Keep Employees on the Payroll—or Rehire Quickly: Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
All Small Businesses Eligible: Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors— are eligible. Businesses with more than 500 employees are eligible in certain industries.
When to Apply: Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply. We encourage you to apply as quickly as you can because there is a funding cap.
How to Apply: 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. All loans will have the same terms regardless of lender or borrower. A list of participating lenders as well as additional information and full terms can be found at www.sba.gov.
The Paycheck Protection Program is implemented by the Small Business Administration with support from the Department of the Treasury. Visit www.sba.gov or www.coronavirus.gov for more information.
If you are interested in the PPP, the US Chamber of Commerce has a very helpful Checklist for Small Businesses and Nonprofits that walks through each step of the application process.
You should plan on working with your current financial institution for PPP loans. If you want to see a full list of RI lenders participating with SBA, the full list is here, pages 30-31.
Independent Sector has put together a list of the information you will need to gather to apply for a SBA loan. It is also suggested that you gather documentation verifying payroll costs, mortgage interest, rent and utility payments that you expect to incur over the two month period after you receive funding.
Emergency Injury Disaster Loan
The SBA provides Emergency Injury Disaster Loans (EIDL) for businesses affected by disasters. As a result of the CARES Act, nonprofits are also eligible to apply for EIDL.
According to a summary from Independent Sector:SBA EIDL loans are low-interest loans provided through the SBA disaster loan program to help businesses and homeowners recover from declared disasters. The CARES Act expands eligibility for access to EIDL loans and provides upfront grants.
- Only “private nonprofits” are eligible for both EIDLs and the new EIDL grants
- Establishes an emergency grant to allow an eligible nonprofit that has applied for an EIDL loan due to COVID-19 to request an advance on that loan, up to $10,000, which the SBA must distribute within 3 days
- Applicants are not required to repay advance payments, even if denied for an EIDL loan, but advanced payments would be counted towards the loan forgiveness amount under a 7(a) PPP loan
- Funds can be used for payroll costs, materials, rent, mortgage or other debt payments
To apply for an EIDL loan, visit the SBA’s COVID-19 Economic Injury Disaster Loan Application.
Payroll Tax Credit
According to Independent Sector’s summary, the payroll tax credit provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. Please note that an organization that receives a PPP loan is NOT eligible for the tax credit.
- The credit is available to employers (1) who were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) where gross receipts declined by more than 50% when compared to the same quarter in the prior year
- The total wages attributed to an employee is capped at $10,000, including health benefits, resulting in a maximum credit of $5,000 per employee
- Eligible wages include
- For employers with greater than 100 full-time employees, wages paid to employees when they are not providing services due to COVID-19
- For employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order
- Applies only to wages paid after March 12, 2020 and before January 1, 2021.
Payroll Tax Deferral
According to Independent Sector’s summary, this program allows employers to defer payment of the employer share of Social Security taxes, 6.2% on employee wages. Please note that payroll taxes may not be deferred if a nonprofit has a loan forgiven under the PPP.
- The provision applies to all employers, including nonprofits.
- There is no limit on the number of employees to take the deferral.
This information is shared as a resource and is not intended as legal advice or an endorsement of any program or policy. Each organization should do their own due diligence and consult professionals for legal and financial advice.