April 13, 2020

CARES Act Provisions for Nonprofit Organizations

By Carmen Jeschke

Carmen Jeschke

The Coronavirus Aid, Relief and Economic Security (CARES) Act introduced several programs designed to provide direct benefits to nonprofit organizations, primarily in the form of loans and tax credits.

Paycheck Protection Program

The Paycheck Protection Program added a new guaranteed, unsecured loan program to the Small Business Administration’s (SBA’s) 7(a) loan program. It creates an emergency loan program for eligible nonprofits and small businesses to cover costs of payroll, operations, and debt service. Organizations that meet the requirements may also have the loans forgiven in whole or in part.

To be eligible for a loan under the Paycheck Protection Program, nonprofit organizations must:

  • Have been in existence on February 15, 2020;
  • Be either a 501(c)(3) or 501(c)(19) organization; and
  • Have 500 or fewer employees (either full- or part-time).

Loans issued through the Paycheck Protection Program do not require either a personal guarantee or collateral, and have a two-year term with a 1% interest rate. Organizations can take up to $10 million or 2.5 times the average total monthly payroll (including benefits) for the one-year period prior to the application date. Organizations must provide a good faith certification that the loan is necessary due to economic conditions brought about by COVID-19, and that 75% of the loan funds will be used to retain workers, and maintain payroll and associated costs, including health and retirement benefits. Organizations can use the remaining 25% to cover utilities and lease payments, and interest on mortgage payments.

Organizations that maintain their payroll (both number of employees and salary levels) for the eight weeks after the loan origination or that rehire employees by June 30 will be eligible to have their loans forgiven, essentially turning the loan into a grant.

Organizations wanting to apply for Paycheck Protection Program loans do so through traditional lenders.

Economic Injury Disaster Loans

This program generates $10,000 emergency grants within three days for eligible nonprofits and other applicants with 500 or fewer employees. This program is being run through the Small Business Administration, and organizations can apply through the SBA’s website.

Employee Retention Payroll Tax Credit

This program creates a refundable payroll tax credit of up to $5,000 for each employee for organizations that:

  • Were a going concern at the beginning of 2020;
  • Have experienced a complete or partial shutdown; and
  • Have seen a drop in revenue of at least 50% in the first quarter compared to the first quarter of 2019.

The credit will continue each quarter until the organization’s revenue exceeds 80% of the revenue from the same quarter in 2019. For tax-exempt organizations, the entity’s whole operations must be taken into account when determining eligibility. Notably, employers receiving Paycheck Protection Program loans would not be eligible for these credits.

Delayed Payment of Payroll Taxes

Employers can delay payment of the employer portion payroll taxes in 2020: 50% will be due at the end of 2021 with the remaining 50% due December 31, 2022.

Economic Stabilization Fund

Organizations with between 500 and 10,000 employees can apply for loans under this fund, designed for mid-sized businesses and organizations. Although this program provides no loan forgiveness, the interest rate on these loans is no higher than 2%, and the loans will not accrue interest or require repayment for the first six months. Nonprofits accepting these loans must retain at least 90% of their staff at full compensation and full benefits until September 30.

Webinar to Help You Apply

MCF has partnered with Scholz Nonprofit Law to help organizations learn more about, and apply for, federal and state aid. You can find the webinar, in which lawyers from Scholz Nonprofit Law outline options available for nonprofits and how to apply.

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