The COVID-19 pandemic of 2020 has had a direct impact on nearly everything and everyone. As businesses suspended operations, millions found themselves unemployed with no idea what to do next.
Small businesses, including nonprofits, have been impacted the hardest by the mandated closures. Without the necessary incomes, many organizations have “furloughed,” laid off, or just terminated their employees. Many employees found themselves suddenly unemployed overnight.
Congress signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) on March 27, 2020. A big part of the CARES Act is the much-talked-about Paycheck Protection Program, designed to help small businesses stay afloat, pay their bills and employees, with the possibility of loan forgiveness. By keeping employees on payrolls and benefits, they can avoid the process of applying for unemployment.
For a nonprofit to participate, it must be:
- In existence as of March 1, 2020
- is either:
- (a) an organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code) or
- (b) a war veterans’ organization exempt under section 501(c)(19) of the Code, and
- has 500 or fewer full and/or part-time employees. However, there are exceptions to this cap and to “related affiliation” rules).
Criteria For Applying
Nonprofits requesting PPP loans must show that:
- Current economic conditions dictate the organization’s need for this loan
- Loan proceeds will be used to continue making payroll to retain employees, as well as make rent, utility and mortgage interest payments
- The organization does not have multiple loan applications and has not received other SBA emergency funds for the same intent.
Using The Loan Funds
The loans are intended only for “permitted uses:”
- Payroll costs, including any benefits
- Facility rent for lease agreements if your lease began prior to February 15, 2020
- Mortgage interest, if your mortgage was incurred prior to February 15, 2020
- Utilities, if your service began prior to February 15, 2020
Note that the PPP is different from the SBA’s COVID-19 Economic Injury Disaster Loan program, which is also available to qualified nonprofits. Contact your lender to start your application. Paypal is also a participant in the PPP program and has additional assistance in its Business Resource Center.
PPP Loan Forgiveness
One of the features of the PPP loan is the option for forgiveness. This essentially turns the loan into a partial, and possibly, the complete grant for the nonprofit.
In order to get this forgiveness, you will still need to complete an application for forgiveness, and make sure you have all the necessary documentation that goes with it.
There are specific allocations required for the loan, including:
- 40% for non-payroll expenses
- 60% on payroll expenses
These guidelines were recently updated from the original guidelines, but you still need documentation that proves that the nonprofit adhered to the requirements for fund allocations. If not, portions of the loan will become ineligible for forgiveness and converted into a standard loan with an interest rate of 1%. The FMA offers an online toolkit to help nonprofits manage their PPP funds.
TSNE, a partner for the nonprofit sector, also has a complete breakdown of PPP loan forgiveness.
Get Help With Your Nonprofit’s Filings And Other Necessary Legal Matters
We have over 20 years of experience helping nonprofit startups in the Chicago area with all of their legal matters. Along with comprehensive knowledge of Illinois nonprofit law as well as best practices for growing nonprofits, Attorney James C. Provenza can ensure that all of your legal requirements are completed. Contact our office at (847) 729-3939 today, or use our online contact form. We look forward to helping ensure that your organization is successful.