Not-for-profits employ 10% of the workforce in the U.S., and many are struggling to make payroll right now as the country takes necessary steps to address the coronavirus pandemic. Treasury, the Small Business Administration, and Congress have taken action to protect organizations and the people they employ. Signed into law by the President on March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act provides opportunities for aid for many not-for-profit organizations. This article summarizes several key elements of the CARES Act.
Paycheck Protection Program (PPP)
This program provides up to $349 billion in forgivable emergency loans to small businesses to cover their payroll costs, mortgage interest, rent, and utilities during the COVID-19 crisis.
Not-for-profit eligibility: A not-for-profit borrower must be a charitable (Section 501(c)(3)) or veterans organization (501(c)(19)) with fewer than 500 employees. Note that the employee threshold includes all statuses (full-time, part-time, and any others).
Maximum loan: Loans can be the lesser of 2.5 times the borrower’s average monthly payroll during the year prior to the loan or $10 million. Note that calculations related to payroll costs vary among seasonal and non-seasonal and existing and new employers.
Loan forgiveness: Full forgiveness is available when funds are used for payroll costs, mortgage interest, rent, and utilities and staff and wage levels are maintained or quickly resumed. Reductions in forgiveness will occur for layoffs and wage reductions. Due to the anticipated high subscription, at least 75% of the forgiven amount must have been used for payroll.
Loan administrators: About 1,800 institutions have been approved for Small Business Administration (SBA) PPP loan processing. Visit sba.gov for a list or check with your local lender to see if they are participating.
When can I apply? Applications opened April 3, 2020 for small businesses (including not-for-profits) and sole proprietorships and April 10, 2020 for independent contractors and self-employed individuals.
How do I move forward? Determine what local lender you can use to process the loan. Evaluate your cash needs. Review the application and gather the required information. Visit the U.S. Department of the Treasury for more information.
How do I assist my clients? The lender guide lists accountants as approved agents of loan applicants. While the application and documentation requirements are simple, make sure you review all the documents before advising any clients. Additionally, consider your clients’ intentions with other SBA loan programs when advising them on funding possibilities. The AICPA will be providing additional guidance on best practices in the near future.
Expanded Economic Injury Disaster Loan (EIDL) and Emergency Grants
The existing EIDL program has expanded eligibility, looser credit standards, and faster funding deployment.
Not-for-profit eligibility: Most private not-for-profit organizations of any size are eligible applicants if they currently have one of the following:
- A currently effective ruling letter from the IRS granting tax exemption under Sections 501(c), (d), or (e)
- Satisfactory evidence from the State that the non-revenue producing organization is a not-for-profit organized or doing business under State law, or a faith-based organization
It appears that there is not a size limitation for not-for-profits per the SBA website, but there is not complete clarity on this matter.
Maximum loan: Normal EIDL amounts go up to $2 million.
Emergency grant: EIDL applicants can receive a $10,000 cash advance within 3 days of successful application to help with expenses such as payroll and benefits, as well as mortgage and debt service payments that organizations are struggling to pay as a result of the COVID-19 pandemic. This loan advance is a grant and will not have to be repaid.
Loan terms: The normal EIDL rate of 2.75% applies to not-for-profits.
Grant terms: The $10,000 advance is forgiven.
Use of funds: Borrowers may apply for PPP loans and other SBA assistance, including EIDLs. However, you cannot use your PPP loan for the same purpose as your other SBA assistance. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, but you could use it for payroll in May or for different workers in April. We are aware that some lenders are interpreting the authoritative guidance differently. We will continue to monitor guidance from the SBA and Treasury. If you find that you cannot get a PPP loan, consider exploring an EIDL.
Other programs: If you are not using the PPP, you may wish to consider other CARES Act programs such as the following:
a) Deferral of employer payroll taxes: The CARES Act allows all employers, including not-for-profits, to delay payment of the employer’s share of Social Security taxes from March 27, 2020 until January 1, 2021 (50% of the deferral will be due December 31, 2021; the other 50% will be due December 31, 2022). Be aware that this deferral is not available to organizations that have loans forgiven under the PPP.
b) Employee retention credit: The CARES Act provides a refundable tax credit against employment taxes equal to 50% of qualified wages, including a portion of the cost of healthcare benefits, (up to $10,000 per employee) paid by the employer between March 13, 2020 and December 31, 2020. An eligible organization with 100 or fewer employees can claim the credit for all employees. For organizations with more than 100 employees, the credit only applies to payments for those employees not currently able to provide services due to a government-ordered, COVID-19-related suspension of operations or a significant drop in gross receipts (2020 gross receipts less than 50% of the comparable quarter in 2019). Be careful not to “double-dip” with any Families First Coronavirus Response Act (FFCRA) employer credits. The IRS has already issued its first informal guidance on the employee retention credit, so be sure to read IR-2020-62 for additional information.
We recommend working with your third-party payroll processor to take advantage of these provisions.
Assistance for larger not-for-profits: The CARES Act encourages the development of a mid-size loan program for organizations, including not-for-profits, with between 500 and 10,000 employees. The AICPA is continually monitoring this and other developments related to COVID-19 relief and will keep you updated as more information becomes available.
Additional information on the provisions and programs discussed in this article can be found in this Guide provided by the U.S. Senate Committee on Small Business and Entrepreneurship. The Treasury and SBA also released an FAQs document, which can be found here.
Please note: This article is designed to raise awareness of the highlighted CARES Act provisions and does not take the place of careful review of published federal agency guidance and regulations on these matters.