Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, 501(c)(3) nonprofit organizations are eligible for new relief programs from the U.S. Small Business Association (SBA) including: the Paycheck Protection Program (PPP) 7(a) loan program and the Economic Injury Disaster Loan (EIDL) Program.
The CARES Act also authorized the Federal Reserve’s Main Street Lending Program, which is currently accepting public feedback on their draft loan facilities for nonprofits through Monday, June 22.
Follow the links below to jump to the section of interest:
- Paycheck Protection Program (PPP)
- Economic Injury Disaster Loan (EIDL)
- Main Street Lending Program
- Additional Resources
To learn about all the CARES Act relief programs for nonprofits, see this tool from the Independent Sector.
Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) provides forgivable loans designed to help small businesses—including nonprofits—keep their staff employed during the COVID-19 crisis. The CARES Act allocated $349 billion for the PPP, but these initial funds quickly ran out. In late April, another $250 billion was added to the program with an additional $60 billion set aside for lending through community banks.
You can still apply! Lenders can accept PPP applications through June 30, 2020, however you should apply as quickly as possible. As of June 6, $130 billion remains available. View more details about eligibility, forgiveness conditions, and additional guidance on the SBA’s website. Many of these resources have yet to be updated following new legislation enacted on June 5, but, in the meantime, you can find a lender who is still accepting applications. A sample application form can help you begin to collect the required information, including payroll documentation.
The Institute for Museum and Library Services hosted a webinar on May 12 covering PPP issues specific to museums and libraries. Watch the recording. A June 9 webinar covered loan forgiveness issues. View the recording.
New Flexibilities for the PPP
The Paycheck Protection Program Flexibility Act of 2020 (PPPFA), signed into law June 5, makes several changes to the PPP, including:
- Covered period: Extends the time period that borrowers can use PPP funds from eight weeks to 24 weeks. Businesses that currently have a PPP loan are not required to extend the loan period and can still request forgiveness at the end of eight weeks.
- Re-hiring employees: Employers now have until December 31, 2020 to re-hire employees (extended beyond the original deadline of June 30).
- Forgiveness provisions:
- Reduces the amount of the loan required to be spent on payroll to 60% (down from 75%). However, failure to spend at least 60% of the total loan amount on payroll, may result in no forgiveness at all.
- Full forgiveness can be granted even if you are unable to bring back the same number of employees you had on February 15, 2020 due to one of the following reasons:
- Business operations cannot be restored to pre-pandemic levels due to compliance with health and safety requirements or guidance issued by the U.S. Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA). This includes maintaining standards for sanitation, social distancing, or other worker or customer safety requirements related to COVD-19.
- Former employees refuse “good-faith” job offers to return to work and you are unable to find qualified employees to replace those let go.
- Note: You still must apply for loan forgiveness from your lender within 10 months of the end of the covered period. PPPFA requires businesses to demonstrate that they were unable to rehire employees or unable to return to previous levels of business activity, however it is unclear what specific documentation is required.
- You can wait until the date that your lender responds to your application for forgiveness before beginning repayment on the principal, interest, fees, and any unforgiven loan amounts.
- The loan term is extended to five years from the original two years. Loans originated prior to PPPFA are not required to extend the term.
- Employer social security tax: You can defer your institution’s portion of payroll taxes through December 31, 2020. Any amount deferred will be due in two equal payments in December 2021 and December 2022.
ASTC expects further clarifications and guidance from the SBA, especially around the new forgiveness provisions. Read more details from ADP, a human resources services company, and Marcum LLP, an accounting advisory company.
A Closer Look at Eligibility
Does my institution qualify as “small”? The PPP is available to organizations with 500 or fewer total employees (adding both full- and part-time, not FTEs). Organizations with more than 500 employees may also be eligible if they meet the relevant size standard for their industry.
- Calculating total employees: Guidance from SBA suggests that this should be calculated as the average number of people employed for each pay period over the business’s latest 12 calendar months. Any person on the payroll must be included as one employee regardless of hours worked or temporary status. However, this does not include independent contractors (who are eligible to apply for PPP independently).
- About size standards: Science centers and museums are listed under the “Museums” category (NAICS code 712110), which has a size standard of $30 million. This refers to the average annual receipts/revenue, which is generally calculated as the average of “your total receipts/revenue or total income plus cost of goods sold (including all affiliates, if any)” over the last three completed fiscal years.
How much can I request? Employers may request a loan of up to two months of your average monthly payroll costs plus an additional 25 percent, up to a maximum of $10 million. The loan proceeds will provide support for payroll and benefits (including paid leave, insurance premiums, retirement contributions, and state and local taxes) and most mortgage, rent, and utility payments over the 24-week period after the loan is made.
Am I likely to get the loan? The CARES Act relaxed requirements for determining repayment ability and creditworthiness, including suspending collateral or personal guarantees. Applicants will be asked to make a “good-faith” certification that current economic uncertainty makes a loan request necessary to support their ongoing operations. Although the PPP is available through June 30, 2020, institutions are encouraged to apply as quickly as possible because there is a funding cap, and lenders will need time to process applications.
- SBA, in consultation with the Department of the Treasury, has established a safe harbor provision for any loans less than $2 million that borrowers “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” Loans over $2 million are subject to review by SBA on the necessity of the loan request, including both economic harm due to COVID-19 and the lack of access to adequate sources of liquidity.
How much will be forgiven? Businesses that maintain employment and salary levels between February 15 and December 31, 2020, can have 100% of their loan forgiven, essentially turning the loan into a grant. The PPPFA also requires that at least 60% of the total loan amount is spent on payroll. Failure to spend this amount on payroll mayresult in no forgiveness at all—additional SBA guidance is expected. Note that any compensation to employees above $100,000 is not eligible for loan forgiveness.
What are the requirements for forgiveness? Employers must maintain employment and salary levels between February 15 and December 31, 2020. PPPFA establishes two exceptions:
- If employees previously laid-off or furloughed refuse “good-faith” written job offers and you are unable to find qualified employees to replace those let go, OR
- Business operations cannot be restored to pre-pandemic levels due to your institution’s compliance with health and safety requirements or guidance issued by the U.S. Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA). This includes maintaining standards for sanitation, social distancing, or other worker or customer safety requirements related to COVD-19.
SBA guidance issued on May 15 also provided an exception in FTE reduction for any employees who were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of hours. It remains to be seen whether this exception will hold under PPPFA.
How do I apply for forgiveness? You must apply for loan forgiveness from your lender within 10 months of the end of the covered period. Borrowers whose loans originated prior to PPPFA do not have to wait 24 weeks to apply for forgiveness—they can do so after eight weeks of receiving their loan. For full forgiveness, all borrowers must demonstrate that they were unable to rehire employees or unable to return to previous levels of business activity. It is unclear what specific documentation is required at this time.
How long do I have to repay the loan? The PPPFA extended the loan term to five years, though businesses with loans originating before PPPFA can keep their original term of two years. All borrowers can wait to begin repayment on the date that their lender responds to their application for forgiveness.
What’s been awarded so far? As of June 6, PPP has provided 4.5 million loans to small business through more than 5,400 lenders, with an average loan size of $113,000. The Arts, Entertainment, and Recreation sector—where museums are categorized—received more than 106,000 loans for a total of $7.6 billion (1.5% of all PPP loans). Download the full report.
Economic Injury Disaster Loan (EIDL)
Economic Injury Disaster Loans (EIDLs) provide small businesses with working capital loans of up to $2 million to help overcome the temporary loss of revenue that they are experiencing due to the COVID-19 pandemic. These loans, which have a term of up to 30 years, have a 2.75% interest rate for nonprofits (3.75% for for-profit companies). Small businesses can also apply for an advance of up to $10,000 that will be made available within three days of a successful application and will not have to be repaid.
On June 15, the SBA re-opened its EIDL program after temporarily limiting applications to only agricultural business due to a high volume of applications and dwindling funds. A number of science and technology centers and museums have applied for and received EIDLs previously. You can still apply for an EIDL loan through December 31, 2020.
Main Street Lending Program
The Main Street Lending Program, run by the Federal Reserve Board and administered by the Federal Reserve Bank of Boston, will soon offer three types of loans to medium-sized businesses who have 15,000 employees or less. These loans range in size from $250,000 to $50 million and are not forgivable. Subscribe for updates the Boston Fed.
Currently, you can offer comments on the draft loans for nonprofits. Review them here and submit your feedback by Monday, June 22.
All loans in the current program have a term of five years, and principal and interest payments on the loans can be deferred for two years. Businesses must be of sound financial condition prior to the COVID-19 pandemic to be eligible. Read the FAQs (last updated after the Federal Reserve announced a program expansion on a June 8).
To apply for a Main Street Lending Program loan, borrowers will need to work with a registered lender, including banks, savings associations, and credit unions. You can ask your lender now if they plan to register for the program and if they plan to serve nonprofits when that program is established. Loans can be made through September 30, 2020.
In order to lessen the credit risk to lenders and free up more of their capital, the Main Street Lending Program intends to purchase 95% of each eligible loan that is submitted to the program and plans to spend up to $600 billion to this end.
Several organizations have created guides comparing the CARES Act loan programs:
- U.S. Chamber of Congress: Coronavirus Emergency Loans: Small Business Guide and Checklist
- Small Business Administration: Coronavirus (COVID-19): Small Business Guidance & Loan Resources
- Congressional Committees:
- National Council of Nonprofits: A chart comparing eligibility criteria, terms, and application information
- Kresge Foundation: Nonprofit Guide to Accessing Capital Through the 2020 CARES Act