In a wave of legislation designed to combat the global economic impacts of COVID-19, Congress has enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act (FFCRA).

At a high level and among many other things, the Acts provide:

• $349 billion in loan funds for small businesses and nonprofit employers, with a loan forgiveness opportunity;
• Loan funds for larger businesses and nonprofits;
• Increased amounts for income tax charitable deductions;
• Employment tax and benefits relief; and
• Expanded paid sick leave and family and medical leave.

This alert provides a brief summary of some of the key provisions of both Acts that apply to nonprofit organizations. We have also included information for organizations that are unable to pay rent and are considering whether to seek a rent abatement or deferral.

Small Business Loans

Paycheck Protection Program (PPP)

One of the core pieces of the CARES Act is the Paycheck Protection Program (“PPP”) that will generally provide loans for up to $10 million. The CARES Act explains that 75 percent of the loan proceeds must be used for payroll costs. The PPP is administered by the Small Business Administration (“SBA”) as a temporary addition to its 7(a) loan program. The CARES Act dictates that entities are eligible if they have (1) 500 or fewer employees with a principal place of residence in the United States (including full-time, part-time, or other status) or (2) fit within the SBA size standards, which could exceed 500 employees in certain industries. On April 4^th, SBA clarified that because it may not have established size standards for all the industries in which nonprofits work, applicants are eligible for the PPP if they “employ not more than 500 employees or, if applicable, the SBA employee-based size standard for the industry in which the organization or business operates.”

Eligible entities could include nonprofit organizations that are organized under sections 501(c)(3) and 501(c)(19) of the Internal Revenue Code and were in operation on February 15, 2020. Faith-based organizations, such as churches, that meet the requirements of section 501(c)(3) of the Internal Revenue Code are eligible for loans under the PPP program. Other types of nonprofit organizations, such as 501(c)(6) trade associations, would not be eligible under the program.

Nonprofits will be subject to the SBA’s affiliation rules. The SBA will consider the number of employees of both an applicant and an applicant’s “affiliates” when determining loan eligibility. In general, an affiliate is another company or other legal entity that has an ownership interest in a business and the ability to control that business but the rules on affiliation are detailed and fact specific.

In addition to payroll costs, which include salaries, wages, tips, paid sick or medical leave, dismissal and separation allowances, health benefits and insurance premiums, retirement benefits, and limited state and local payroll taxes, 25 percent of the loans may be used for mortgage interest, rent, utility payments, costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; interest payments on other debt obligations incurred before February 15, 2020; and refinancing an EIDL made between January 31, 2020 and April 3, 2020. However, as explained below, only a subset of these costs are eligible for forgiveness.

The loan amount is the lesser of $10 million or 2.5 times the average total monthly payroll costs with special rules for seasonal employers and recently formed companies. The maximum interest rate is 1 percent.

Loan proceeds can be forgiven for loans made from February 15, 2020 through June 30, 2020, to the extent that at least 75 percent of the proceeds are used in the eight weeks following the origination of the loan to fund payroll costs (including certain benefits), with the remainder used to pay mortgage interest, rent, and utilities. Payroll costs are limited to a $100,000 cap per employee. There is ambiguity as to whether the interest owed on the loan will be forgiven.Continue Reading COVID-19 Relief and Nonprofits: What You Need to Know