Photo by Markus Spiske via Unsplash
By Lisa Cirincione, Senior Resource Development Associate at Joining Vision and Action
For an overview of additional CARES Act support by category (health care, education, youth, low-income individuals and families, etc.), please see my accompanying blog, What’s in This Massive $2.2 Trillion Stimulus Legislation?
The CARES Act includes $377 billion to help small businesses and nonprofits with up to 500 employees. Much of that will go to businesses to pay workers, mortgage interest and rent.
The CARES Act also allows states to apply for grants for short-term compensation programs and the overall administration of those programs, such as:
- Creation or support of rapid response teams to advise employers about alternatives to layoffs
- Education of and assistance to employers to enable them to assess the feasibility of participating in short-term compensation programs
- Development of systems to automate filing and approval of short-term compensation claims.
Paycheck Protection Program loans
Small nonprofits and small businesses may also receive bank and credit union loans backed by the Small Business Administration (SBA).
These Paycheck Protection Program (PPP) loans could be spent to pay employees for up to approximately 2.5 months, a mortgage or rent, and/or utilities. Regular W2 employees, self-employed individuals and independent contractors are covered by these loans. These loans have fewer restrictions than other SBA programs, and that money will begin flowing in about two weeks.
Under this program, applicants approach their bank/credit union and complete its required paperwork, and then the SBA reviews the loan and guarantees it against default. (Approval is expected to occur within about two weeks of application.)
Unlike other SBA loans, these won’t require business owners to provide personal guarantees or use all of their available assets as collateral. These loans have no fees, can be kept for 10 years, and have interest rates capped at 4% with automatic deferral of payments (principal and interest) for the first six months.
The program does have restrictions: Loans are limited to $10 million, for businesses with 500 employees or less. Businesses that have recently laid off workers would be required to repay a larger portion of their loans, and loans covering salaries of over $100,000 a year wouldn’t qualify for forgiveness.
Businesses will not have to repay loans covering up to eight weeks’ worth of payroll expenses, so as soon as the nonprofit/business receives a loan through this program, it has to spend it within two months to avoid repaying it.
Loan forgiveness is available under certain conditions. The SBA plans to publish guidance for these loans on April 11, but U.S. Treasury Secretary Steven Mnuchin has stated that these loans will be available as soon as April 3. The U.S. Chamber of Commerce has a checklist and guide here to help you determine how much you’re eligible for.
Additional loans for small organizations
The CARES Act also includes a program called the Expanded Economic Injury Disaster Loan (EIDL) & Emergency Grants [SBA 7(b) loans], which applies looser credit standards than the EIDL has had in place and creates a rapid grant procedure that provides $10,000 to nonprofits with 500 or fewer employees.
The loan can be processed in three days and used to pay salary and operating expenses. This program is treated as a grant because the loan will be forgiven, but it must be spent in 2020.
Organizations can also apply for a larger EIDL loan of up to $2 million with a 2.75% interest rate. These will take several weeks to process. Not every charitable organization qualifies for the EIDL program, but it’s a valid option for many. This loan program does not require a personal guarantee up to $200,000, and there is no requirement that an organization or business be unable to get credit from another source.
The CARES Act set aside $10 billion total for the coronavirus disaster EIDL.
At this point, it does not appear that a nonprofit can apply for and receive both of these SBA EIDL loans, but JVA will watch for clarification on that.
Loans for mid-size nonprofits and businesses
Another CARES Act program that is still being designed at this point is a mid-size loan program called the Emergency Stabilization Fund, which may be appropriate for nonprofit and other entities with between 500 and 10,000 employees.
This fund is designed to help ensure organizations that cannot obtain alternative financing retain at least 90% of their workforce. The loan will have a 2% interest rate. It will be administered through the U.S. Department of Treasury.
A previous package that has already been enacted offered special disaster-relief loans from the SBA to cover employees’ benefits along with utilities while businesses were closed. Applicants for those loans have overwhelmed the SBA system to the point that people are reporting difficulty applying for them.
There is also an Employee Retention Payroll Tax Credit available to nonprofits with over 500 employees for up to $5,000 for each employee when operations are fully or partially suspended and gross receipts fall by 50% from the previous year. This is not going to be available to those who receive a Paycheck Protection Program loan. The act also includes support to reimburse self-funded nonprofits for half of the costs of unemployment benefits provided to their laid-off employees.
Charitable donation incentives
The CARES Act also creates an incentive for individuals and corporations to make cash charitable gifts by temporarily suspending the current limitations on adjusted gross income for itemizers. It also allows non-itemizers to deduct $300 in cash charitable contributions ($600 for married couples) made in 2020 and claimed on their 2020 tax return.
Furthermore, it increased the limit on cash contributions from corporations to 25% of the corporation’s taxable income in 2020 (up from 10%). Qualified cash contributions in excess of the 25% limit can be carried forward for up to 5 years under the usual limits. This change should encourage more corporate giving in 2020.
Additional aspects of this bill that have been widely publicized include one-time cash payments to individual taxpayers earning less than $75,000 and expanded unemployment insurance benefits.
While the act lays out the broad strokes about what will happen, details about the timing for how all of this additional funding will reach states, local governments and nonprofits is still unknown. JVA will be watching this closely and advising our clients about possible funding opportunities as they are released. (See These Funders Have Money for Nonprofits Affected by Coronavirus.) JVA also can help new clients with funding research so they don’t miss out on any of this funding.
For help in understanding the details of the assistance available to your organization, and for support in applying for grants or otherwise securing funding to help you meet the challenges of the COVID-19 outbreak, please feel free to email me directly. And remember to see my companion blog, What’s in This Massive $2.2 Trillion Stimulus Legislation?, for an overview of CARES Act support by category (health care, education, youth, at-risk adults, etc.).