COVID-19 News and Updates | | Apr 10, 2020
On March 31, 2020, the United States Department of the Treasury released its initial guidance for nonprofit organizations concerning the recently signed Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act.” The Act is a $2.2 trillion relief bill in response to the COVID-19 outbreak and is the largest relief bill in the nation’s history. In addition to provisions for various types of business entities and individuals, the CARES Act also provides many opportunities for financial relief for nonprofit organizations.
The anticipated Treasury guidance has been an avenue of hope for nonprofits struggling with immediate cash flow issues and difficulties projecting long term financial outcomes due to the economic uncertainties of the coronavirus. Nonprofit organizations have eagerly been awaiting guidance concerning one very time-sensitive provision of the Act: the Paycheck Protection Program.
The CARES Act Paycheck Protection Program is part of the Small Business Administration (SBA) 7(a) Loan Guarantee Program. Internal Revenue Code (IRC) Section 501(c)(3) and 501(c)(19) organizations with 500 or fewer employees that were in operation before February 15, 2020, qualify for the benefit of loan amounts up to $10 million. Organizations can receive loans for the lesser of $10 million or 2.5 times their average total monthly payroll costs. The CARES Act set aside $349 billion for the Program.
The application for entities to apply for the loan was released on March 31, 2020. Entities have been rushing to complete the application and submit them to a federally approved SBA Participating Lender because funds from the program are limited. Nonprofit applicants must certify various details concerning their organization such as:
- the organization is facing current economic uncertainty
- the organization will only use the funds for authorized purposes such as payroll and occupancy expenses
- the organization will provide documentation to the lender after eight weeks verifying payments went for authorized causes
- no more than 25% of SBA loan forgiveness will be spent on non-payroll related costs
- the organization has not and will not apply to receive any additional loans under the program
The new guidance specified that the loans are for a two year period and the interest rate is calculated at a fixed percent of 0.50%. One of the most applauded aspects of the program is that after an eight week period, the organization might have their loans fully or partially forgiven based on certain employment activities, essentially turning the original “loan” into a “grant.”
Organizations can officially apply beginning April 3, 2020, and timing is a critical factor due to the program’s finite amount of monetary resources.