Information for Maine Nonprofits During COVID-19
How to Apply for CARES Act Loans (and Loan Forgiveness)
The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed on March 27, created several loan programs for which nonprofits are eligible.
- Find details on loan options, eligibility criteria, terms and application information below.
- This chart from National Council of Nonprofits summarizes the loan options. They caution that it is not a replacement for financial or legal information for your specific organization.
- MANP has gathered a team of volunteers able to assist nonprofits in accessing these loans. Learn more and request an appointment with a volunteer on our Rapid Response Team page.
Paycheck Protection Program (PPP) – (SBA 7(a) Loans)
This is an emergency loan program for nonprofits (501c3 charitable nonprofits and 501c19 veteran’s organizations) and for-profit entities with 500 or fewer employees to secure funds to pay staff and operating costs for two months, and secure full loan forgiveness under certain circumstances. The legislation now heads to the House, which had finished voting before the bill cleared the Senate, and will require President Trump’s signature for the program to continue.
Availability of Funds
The original Paycheck Protection Program funds were quickly depleted, but on April 24th, the president signed the Paycheck Protection Program Increase Act and money still remains from that allocation. The original deadline to apply was on June 30th, but has been extended by five additional weeks (to August 8th). Need help applying? Request support from a volunteer on MANP’s Rapid Response Team!
Purpose + Terms
- Loan Size: The lesser of $10 million or 2.5 times the average total monthly payroll costs from the one-year period (look back) prior to the date of application. Find details on how to calculate PPP loan amounts.
- Eligible expenses: Expenses incurred between February 15, 2020 and June 30, 2020 for payroll costs, health benefits during sick or family leave, salaries or commissions, interest on mortgage, rent, utilities and prior debt.
- Payroll costs include salary, wages, sick leave (unless allowed for paid leave tax credit), health benefits, pension benefits, and state taxes (Payments for salary and wages limited to $100,000). Independent contractors do not count as employees for this calculation.
- Loan terms: 1.0% interest rate; first 6 months of payments (principal and interest) automatically deferred. Maximum of 2 years. If certain conditions are met, the loan is 100% forgivable, essentially becoming a grant (see below).
- The PPP Flexibility Act: On June 5, 2020, the U.S. President signed into law the Paycheck Protection Program Flexibility Act (PPP Flexibility Act or Act) to provide businesses with greater flexibility and more time to maximize forgiveness of loans received under the Paycheck Protection Program (PPP).
- PPP Application Deadline The Joint Statement and Seventeenth Interim Final Rules state that the SBA will not accept PPP applications after June 30, 2020. As of June 6, 2020, there was approximately $150 billion in committed PPP funds available for businesses to access.
- Extension of the Forgiveness Period Prior to enactment of the PPP Flexibility Act, a PPP borrower could apply for loan forgiveness for up to the amount of PPP loan proceeds expended on authorized uses during the 8-week period immediately following receipt of the loan. The PPP Flexibility Act extends this 8-week “forgiveness period” to 24 weeks after the date of disbursement of the PPP loan to the PPP borrower, but in no event ending later than December 31, 2020.
- Reduction to Minimum Required Use of Proceeds for Payroll Costs Prior to enactment of the PPP Flexibility Act, a PPP borrower was required to utilize at least 75% of the PPP loan proceeds it used towards “payroll costs” (as such term is defined in the CARES Act). The PPP Flexibility Act has relaxed this requirement by reducing the minimum percentage to 60%. The Act also states, whether intentional or not, that in order to be eligible for any forgiveness, a PPP borrower must spend at least 60% of its total PPP loan proceeds towards “payroll costs.” The Joint Statement and Seventeenth Interim Final Rule, however, has clarified that the SBA interprets the 60% requirement as a proportional limit on eligible non-payroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness. The Joint Statement and Seventeenth Interim Final Rule states that if a PPP borrower uses less than 60% of the loan amount for payroll costs during the forgiveness period, the PPP borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
- Extension of the Safe Harbor Period for Loan Forgiveness Prior to enactment of the PPP Flexibility Act, a PPP borrower had until June 30, 2020 to eliminate a reduction in employment, salary and wages that would otherwise reduce the forgivable amount of its PPP loan. The PPP Flexibility Act extends this safe harbor period to December 31, 2020. In addition, the Act provides that PPP borrowers will not experience a reduction in their forgiveness amount due to a decline in the FTE employee count if the PPP borrower, in good faith, is able to document:
- (A) (i) an inability to rehire individuals who were employees of the PPP borrower on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- (B) an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
- Extension of Payment Deferral Prior to the enactment of the PPP Flexibility Act, principal and interest payments on each PPP loan were to be deferred until the date that was 6 months after such loan’s funding date. The PPP Flexibility Act extends the deferral period to the “date on which the amount of forgiveness determined under Section 1106 of the CARES Act is remitted by the lender”. The Act further provides that a PPP borrower that fails to apply for forgiveness within 10 months after the last day of the 24-week forgiveness period must begin making principal and interest payments on the date that is 10 months after the ending date of the forgiveness period.
- Extension to Maturity Finally, the PPP Flexibility Act extends the maturity date to at least a minimum of 5 years for PPP loans disbursed on or after the date of enactment of the Act. For PPP loans disbursed prior to the enactment of the PPP Flexibility Act, the Act explicitly permits PPP borrowers and lenders to mutually agree and modify the existing maturity terms to conform with the new minimum of 5 years maturity for any remaining outstanding balance of a PPP loan after determination of forgiveness. Source: National Law Review, June 13, 2020
How to Apply
- Organizations apply for the Paycheck Protection Program through SBA accredited institutions – many local Maine banks are qualified lenders!
- Application (as of 6/12/2020) – The loan application is designed with small businesses in mind, which can cause confusion for nonprofit organizations. Here are some clarifications that might help you during the application process:
- Name of Primary Contact: Who signs your loan application depends on the structure of your organization and your by-laws. It should be someone in a leadership position, for example your Executive Director, Chief Executive Officer, or Board Chair.
- List of Owners – 501(c)3 nonprofit organizations are not privately owned by individuals. In this box, you should enter: None – 501(c)3 Charity
- Questions 1-4 should be answered on behalf of your organization.
- Questions 5 & 6 should be answered by the Primary Contact listed on the application.
- Application Signee: The person identified as the Primary Contact at the top of the application should be the signee of the loan application.
- Sample list of documentation that may be required:
- Articles of incorporation/organization;
- Bylaws/operating agreement;
- Drivers’ licenses for primary application signer;
- IRS form 990;
- Payroll summary report with corresponding bank statement (If not available, employee pay stubs as of February 15, 2020 with corresponding bank statement and breakdown of payroll benefits.)
- Need help? Get matched with a volunteer from MANP’s Rapid Response Team!
- The SBA’s interim final rule implementing the Paycheck Protection Program.
- Frequently asked questions posted by SBA and Treasury (updated May 27) including more details on application procedures and calculating payroll costs.
- Independent Sector has also created resources to help nonprofits learn how to apply for CARES Act relief funds.
- U.S. Chamber’s Small Business Guide and Checklist
PPP Loan Forgiveness
The best part of the Paycheck Protection Program (PPP) is that 100% of the loan can be forgiven—if you meet certain criteria.
- Guidance on loan forgiveness (SBA Interim Final Rule, May 22)
- Learn more from the National Council of Nonprofits – a helpful breakdown of the SBA’s Interim Final Rule
- On June 22nd the SBA issued an Interim Final Rule – Revisions to Loan Forgiveness IFR and SBA Loan Review Procedures IFR. The big news is that they answer the question: does a borrower have to wait until the end of the eight- or 24-week covered period before applying for loan forgiveness? The answer is a borrower can apply when it so chooses. “A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness.” (emphasis added) Elsewhere, however, the new rule states, “If the borrower applies for forgiveness before the end of the covered period, it must account for the salary reduction for the full 24-week covered period (totaling $1,200).” So, the rule is that before applying for forgiveness, make sure staff salaries are restored to at least 75 percent of pre-pandemic pay, staffing levels are back up, and the money is fully spent.
- Loan forgiveness calculator (always double check the date to ensure it is incorporating the most updated SBA rules)
- Recorded webinar: Seeking Forgiveness for a Paycheck Protection Program Loan (July 23 from NonprofitQuarterly)
Applying for Loan Forgiveness
SBA and Treasury announced revised application forms for loan forgiveness on June 16. In addition to updating the original forgiveness application, SBA also published a new EZ version of the forgiveness application that applies to borrowers that 1) did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR 2) experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
The EZ application requires fewer calculations and less documentation for eligible borrowers. Both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period.
Economic Injury Disaster Loan Programs (SBA 7(b) Loans and Grants)
The CARES Act expands the existing Economic Injury Disaster Loan (EIDL) program and provides upfront grants.
Purpose + Terms
- Eligibility: “Private nonprofits” are eligible for both EIDLs and the new EIDL grants. Eligible private nonprofits include all charitable nonprofits, including faith-based organizations, per SBA FAQs published 4/3/2020. The Act does not waive the SBA’s typical affiliation rules for nonprofits, so those entities will still need to include affiliates when determining eligibility for a loan under the Program.
- Loan terms: 2.75% interest rate for nonprofits
- Eligible expenses: Funds can be used for payroll costs, materials, rent, mortgage or other debt payments
- EIDL Grant: The Act establishes an emergency grant to allow an eligible nonprofit that has applied for an EIDL loan due to COVID-19 to request an advance on that loan, up to $10,000 ($1,000 per employee up to $10,000) to anyone who applies whether or not they qualify for the loan itself. This money can be rolled into the PPP Loan if you are accepted for that (in which case it is subject to the restrictions of the PPP loan in terms of how and when it is spent). The SBA has shut down this program. We’ll notify you if and when it reopens.
Availability of Funds
On June 15th, the SBA announced that it was opening back up the EIDL program to small businesses including nonprofits. Given the popularity of this program, it makes sense to apply as soon as possible before funding runs out again.
How to Apply
Apply for the EIDL program directly at the SBA website here.
Loans for Mid-Sized Organizations (between 50 and 10,000 employees)
The Act also created a largely undefined loan program to be created by the Treasury Department to fill the gap between the Paycheck Protection Program for smaller employers and the industry stabilization loans to big business.
On June 15th the Federal Reserve Board announced its proposal to expand the Main Street Lending Program to provide access to credit for nonprofit organizations.
The Federal Reserve established the Main Street Lending Program (Program) to support lending to small and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. To learn more about this program, please visit the Federal Reserve website.
Because these loans are not forgivable and eligibility requirements and loan terms are not attractive to the nonprofit sector, we continue to lobby Congress and the Federal Reserve to create a more appropriate lending program.
Free Support to Navigate Loan Options, Applications and Forgiveness
MANP has gathered a team of volunteers able to assist nonprofits in accessing these loans. Learn more and request an appointment with a volunteer on our Rapid Response Team page.