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The CARES Act May Help Your Nonprofit Retain Its Staff

CARES Act Passes
The Paycheck Protection Program Component May Help Your Nonprofit Retain Your Staff

On Friday, March 27, 2020, Congress approved the Coronavirus Aid, Relief and Economic Security (CARES) Act.  This is the third phase of a sweeping relief package Congress has passed in its efforts to mitigate the economic impact of COVID-19.

UPDATE 4/1/20:  Applications and explainer sheets have been released for the Paycheck Protection Program and can be downloaded here:

We are not able to consult with clients regarding this program and its application to any particular nonprofit.  We’ll leave that to the SBA or an SBA lending bank.  We are providing this information solely for the knowledge and benefit of our clients and readers, because of the potential impact it may have on their operations.

Relief Components

Expanded unemployment insurance.  This is an expansion of the usual unemployment guidelines, providing a $600 per week increase for up to four months.  Also, UI benefits are being extended to those who are usually ineligible, including the self-employed and independent contractors.

Recovery Rebate for individual taxpayers.  This portion of the Act provides payouts to individuals and families, meant to offset personal economic purchasing power over the course of the next few weeks or months.  Most individual taxpayers will qualify for a $1,200 tax credit, with married-filing-jointly taxpayers getting $2,400 per couple.  Taxpayers will also receive $500 per child.  Individuals making between $75,000 – $99,000 will see their credit phase out over that range.  For joint taxpayers, the phaseout range is $150,000 – $198,000.

Paycheck Protection Program

The most interesting component for your nonprofit may be the Paycheck Protection Program.  This is a $350 billion allocation meant to help small businesses, including nonprofits, to retain their staff during this downturn in the economy.  The money itself will come in the form of a loan through the Small Business Administration (SBA).  And, as long as the money is used to retain and pay employees, it won’t have to be paid back!

How Much Can You Borrow?

Loans can be up to 250% (2.5x) of your nonprofit’s average monthly payroll costs, not to exceed $10 million.

Qualifying for the Loan

It’s actually hard to not qualify for this if you’re an employer.  Here are the basic qualifications:

  • Your nonprofit has less than 500 employees
  • You believe that the current economic conditions make the loan necessary to support ongoing operations, and
  • You don’t have a current loan application pending for the same purpose

You will not have to provide a personal guarantee, nor collateral in order to qualify.

Forgiving the Paycheck Protection Program Loan

Borrows will be able to have the entire amount received under this program forgiven, provided that you retained your employees during the 8-week period that you will be accountable for.  Should you wind up laying off employees anyway, the percentage of the loan that went toward retaining the staff you let go will revert to an SBA loan, with a 2 year maturity at 0.5% interest.

The US Chamber of Commerce has prepared a page that helps you understand the details even more.  We’ve also provided a link below to download their quick sheet guide to this program.

CORONAVIRUS EMERGENCY LOANS

US Chamber of Commerce Small Business Guide and Checklist

Don't Let This Opportunity Pass

I’m not usually a fan of government largess, and I have grave concerns about the ultimate cost to the national debt.  But that’s an argument for another day.

This is an unprecedented event in the history of the US, and the CARES Act represents an unprecedented response.  Hopefully, its intended purpose is realized and small businesses and charities will be able to retain their valued team members during this season.

If your nonprofit qualifies, and you truly believe you can retain your employees and see this loan forgiven, TAKE THE MONEY!  It’s already allocated, so use this once-in-a-lifetime opportunity to shore up your organization’s balance sheet.

We wish all of you the absolute best and pray this disaster quickly abates and we can all return to our missions soon.

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who subscribe to our free, email newsletter.  It’s information that will empower your nonprofit!

Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 54 Comments
  1. Very helpful information, Greg. Two questions:
    1. I see newly-formed nonprofits (post-March 1st) aren’t eligible for PPP loans, but older ones are. I have one charter school which incorporated in October and is still awaiting its 501(c)(3) determination letter (probably still months away). Assuming it eventually gets approved, is it PPP-eligible? I believe so. (Once the IRS approves an entity, its status is retroactive to filing.) Correct?
    2. I have another charter school client which never incorporated. It exists as this privately-run non-profit (by state statute), but would technically not be a nonprofit corporation with 501(c)(3) status. If it was classified as a state agency, it definitely would be excluded from PPP. But in practice it really is a private nonprofit. Thoughts on whether it’s PPP-eligible?

    1. 1) Technically, if approved, status should be retroactive. As far as the PPP goes, however, you still have to have actual payroll to base it on. Plus, I suspect by the time you are approved, round 2 of the PPP will probably be closed. Who knows if there will be a round 3. Hopefully it’s not gone before you can participate.
      2) If it has historical payroll, it probably is eligible as a business. The complication will be on the application regarding ownership. There is none because is it corporately a nonprofit, but operating as a taxable entity. Probably need to talk to your SBA-lending bank on that one.

  2. Did the SBA ever issue a clarification as to how they wanted nonprofit 501(c)(3) organizations to fill out the “Applicant Ownership” section of the application. As a nonprofit we dont have any owners. I saw the earlier discussion, but wasn’t sure if a consensus was reached. What has worked for other nonprofits that have had their loans approved.

  3. Greg,

    I would for a 501-3C status non-profit organization that is also a bar that operates as a business and donates quarterly profits to LGBT organizations. Us bartenders are considered ‘volunteers’ and not actual employees, and our organization has not paid unemployment insurance of any kind. Is there any way that we, as bartenders and volunteers, would be eligible for unemployment benefits under the expansions provided by the CARES Act? Thank you for your time, and I anticipate your response!

    1. Not that I know of, Brence. I’m much more familiar with the impact on charities and their direct employees, not so much on the contractor side. If in doubt, I suggest a call to your state Department of Labor. They should be able to address that question.

  4. I apologize if this question has already been asked and answered. What about employees that are paid full or in part by an existing grant source? Should they be excluded from the average monthly payroll amount and number of employees?

    1. It has been asked, but not answered here. In my opinion, salaries that are funded through a grant line item should not be included. The reasoning is that the PPP is meant to ensure payrolls can be met when the ability to pay over the next 2 months is uncertain. You have to attest that the ability to pay is uncertain, when it really isn’t. Do with that what you will, but it would seem to rule those salaries out of consideration.

    1. It must be submitted through an SBA-approved lending bank. I highly recommend contacting such a bank in our area, then let them tell you what you should fill out. Obviously, the application is part of it, but there will be other information they require you to provide.

  5. We are a non-profit who is also the fiscal sponsor of a former 501c3, I just assumed we would need to file one application that included them, is this incorrect? Should our sponsee file on their own even without 501c3 status?

    1. Their having 501(c)(3) status or not shouldn’t be a factor. What matters is whether they are paying salaries under their own corporate identity (EIN). If their staff is paid by your entity, it would be one application. If they’re under another EIN, that sponsored group would have to apply separately.

      1. thanks,
        Greg, so kind of tricky. Although they were not on our payroll before, moving forward they will be drawing pay from a bank account in our name. I would assume then that we should apply together?

        1. You’re right…this sounds tricky. I’ll honestly say I don’t know about that. I think you’ll have to work that out with your SBA lender. If I had to guess, I’d still say it’s two separate applications, but I’ll let them confirm or deny that. Good luck either way, Dane!

    1. This has been a point of great confusion, and the SBA guidance has been difficult to parse. That said, the most recent guidance is that you CANNOT include payments to anyone other than enmployees. Independent contractors (1099-MISC recipients) can apply for themselves starting April 10.

  6. Hello, if a nonprofit’s exemption status was revoked and is currently in the process of reinstatement, and the nonprofit had employees, do they still qualify for the Paycheck Protection Plan?

    1. It should still qualify. I haven’t seen anything in the documentation that would indicate otherwise.

  7. Hi! The Foundation Group was instrumental getting our organization started back in 2013-14. Thank you!

    We went to our bank to apply for funds through Cares Act, specifically the Payment Protection Program. We currently have 2 employees and 13 independent contractors. Our bank (unnamed) does not do loans for nonprofits, which was a huge surprise. As a result, even with SBA backed loan, they are unwilling to help during this time. We have applied with SBA in the meantime. Do you have other suggestions? My understanding is that primary bank is the way SBA is applying Cares Acts. In this case my primary bank is unwilling to help.

    1. That really makes no sense. Sorry to hear that. There are banks that specialize in SBA lending, and it shouldn’t matter whether you’re a nonprofit or for-profit. Hopefully the SBA can point you toward a partner bank that will help you.

  8. Thank you for this very informative article! Of all the info coming my way, this article has been one of the most concise and helpful. At Branches, 90% of our staff (our counselors) are independent contractors. Do you have any suggestions for how they would prove that the funds received were used for “salary” or “payroll”? Any help you can give is appreciated!

    1. It’s going to be based primarily on prior gross earnings. What it is spent on should not matter. That’s best demonstrated by what has been shown on an independent contractor’s Schedule C on their Form 1040. If the person’s 2019 return hasn’t been prepared, that will require showing some type of gross receipts report for 2019. A Schedule C is better, because it is verifiable. Good luck with it!

  9. I raised money for my non profit by recycling cans, plastic and glass. Most of this takes place between 5pm and 11pm after my main job as home health aide. From July 2018 to August 2019 i raised $6000 which made me supply 67 tricycles in Nigeria. Now i cannot continue with that activity until the pandemic is over. Am i qualified for this money. Thank you
    Winifred Ayuk

    1. Probably not. This is a payroll support loan. It is for the express purpose of helping small businesses and charities hurt by the COVID-19 crisis to pay their staff in the same manner they have been the past 12 months. You have to prove what your historical payroll expenses are, then you can borrow up to 2.5x that amount. Unfortunately, this won’t replace lost donation revenue, nor the money you are missing out on because you cannot recycle right now.

      1. You will have to check with an approved lender for documentation needs. I’ve already heard different lenders requiring different things.

  10. I have looked at sample SBA Form 2483 Application for Paycheck Protection. After the initial section of data about the applicant business entity, there is a section for “Applicant Ownership” and list all owners with greater than 20% ownership. However, as a 501(c)(3) entity and Texas corporation, we have no “owner”. I could list myself since I am a Board member with title of Treasurer and I am the Secretary of the corporation. Does this seem correct for this Form? The Form is located at https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form.

    1. Great question. Check the box in the top left that says Non-Profit for starters. As for the Applicant Ownership section, the instructions do not make it clear what to do for nonprofits. I would use the process of elimination to conclude you should put nothing there, as the instructions are very clear about how to determine what ownership means, depending on the other business types. That’s my conjecture, and I’m looking at the form myself today for the first time. If in doubt, contact SBA.

      1. Just as an FYI….I have tried to leave those “ownership” fields blank, and I’ve tried putting NA/Non-profit, but there are certain fields that require a specific answer or you can move forward and you can’t leave it blank and you can’t put N/A.

        1. Not surprising, as quickly as they put this program together. Your lender will likely have to tell you what they want you to do on that section.

        2. Carol, did you ever get an answer from anyone as to what churches (501(c)3) should put as owner since we do not have an owner and that section is required and won’t let us go any further until we fill it in?

          1. You just enter “0” for the ownership percentage. We put our executive director’s information in as the
            “owner”, but the application through our bank said for nonprofits, just put 0 in the ownership percentage field.

    1. We don’t have those and are not authorized to assist. This program is exclusively run by the SBA. Go to SBA.gov for details on how to apply.

  11. Greg,
    3 Question….
    #1 What is the time frame that the employees must have been employed with the Non-profit?
    #2 Can we apply for funding to begin July 1st and if so what is the maximum amount? Currently we have a grant that covers our employees through June 30th. However, we are VERY concerned that due to COVID-19 that we will not be able to sustain our employees after July 1st?

    1. 1. This isn’t based on any particular employee. It’s based on your 12-month average payroll cost x 2.5.
      2. You can apply later in the year, if need be. Download the linked PDF in the article, or visit SBA.gov for details on how long you have to participate.

  12. I am a small business. Is the first $10,000 a grant. Please explain the difference in the EIDL and Paycheck Protection Loan?

    1. EIDL and Paycheck Protection are separate programs. The PPP program will only be available through SBA lending banks.

  13. Greg, This is VERY helpful. Thank you. if we hired our first employee and the employee started in January of this year, will we qualify? We’re a non profit that runs events so this could mean a great deal to us. Thanks again.

    1. The way it looks to me, you would qualify for 2.5x your average annual wage base, calculated over the past 12 months. For a new organization, that might mean substantially less than would be available to a nonprofit with a longer history. Go to SBA.gov and read the fine print there. Maybe (hopefully) you could qualify for more.

  14. Although we have been around for over 25 years and we are a 501(c)(3) organization, we do not have employees. We have a consultant that we pay to coordinate our Friendly Visitor program helping our LGBTQ Seniors age in place at home and in residential care facilities. This program is designed to reduce isolation and has been intensified during the recent constraints of the government ordered Shelter in Place. Although we are no longer able to visit our clients in residential nursing facilities we are working with the facilities in creative ways to support conference calling and face timing. Many of our seniors in their homes are unable to pick up medicine and supplies and we are providing transportation to that end. With the loss of events and fundraising opportunities to support this program we need your help and ask if our Coordinator may also be considered for this relief.

    1. Your organization will not qualify for the PPP program without employees. Your consultant, however, is considered self-employed and may be able to qualify on their own. Refer to the resources provided in the article for details.

  15. I’ve been looking at the paycheck protection loan. I can’t find any application for it or any way to start applying for it on behalf of a not-for-profit. Any hints?

    1. It’s not available just yet. Find a bank in your area that provides SBA loans, and they can help you when the time comes.

  16. Mr. McRay,
    I hope you, the family and your team are well and safe.
    Thank you for the information you have provided regarding the CARE Act.
    It was not very clear to me if the registered 501c3 non-profit (Public ) organizations are eligible and covered under this protection program?
    As per the application, under “Eligible Entity Verification” the last option showing only ” Applicant is a PRIVATE non profit organization……..”
    Can you please explain if the Public non profit charitable organizations with 501c3 are eligible?

    Thank you

  17. First, thanking you for your support and collaboration. I am the CEO of Brothers Helping Brothers abs is currently writing a proposal for a community center for ages 6- seniors. In my proposal we are asking for 20
    Million.

    The proposal is finished currently writing my
    bylaws. Greg can you give me advise on what to do next to get this loan from the Government while I have the opportunity?

    Once, again Greg thanking you for your time, patience and most of all your utmost consideration afforded me as I await your urgent response.

    Respectfully
    CEO/ Robert Hilton
    Website: brothers-helping-brothers.com
    brothershelpbrothers@gmail.com

    1. We cannot advise you on this; just making it known. Banks authorized to provide SBA loans can assist you directly once this becomes available in a few days. Go to SBA.gov for more details.

    1. We cannot help you. We are only informing our clients and readers that this important program is coming available. To apply (when they open it up), go to SBA.gov. Most likely, you’ll have to apply through a bank in your area.

  18. We were in operation as non profit last year but only paid the director for about half of the year and handful of summer staff. So is the loan calculated based on that total payroll expense from 2019 multiplied by the 2.5 factor? So if we spent $30k in payroll for 2019 we would potentially qualify for a $6,250 loan? Which would be forgiven as long as we retain any current employees through the 8 week period?

    1. It’s based on the average monthly payroll x 2.5. For example, if you average $10,000 per month in payroll costs, the total loan available is $25,000. Download the Chamber of Commerce guide from the article, which details how to calculate it. Or see the SBA website for more details, as well.

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