CARES Act Loan FAQs for Nonprofits, Foundations, and Small Businesses | Nilan Johnson Lewis PA
On April 2, 2020, the United States Small Business Administration (SBA) issued an interim final rule regarding how the agency will implement the “Paycheck Protection Program” of the Aid Act, relief and economic security against coronaviruses (CARES Act). The CARES Act also expands the SBA’s long-standing Economic Disaster Lending (EIDL) program.
Here are some frequently asked questions about why nonprofits, foundations, and small businesses should pay attention to these CARES Act loan programs.
What is the Paycheque Protection Program and how does it impact small businesses (with 500 employers or less)?
The Payment Protection Program is available to small businesses and nonprofit charities with 500 or fewer employees. Employees of affiliated nonprofits may count towards the 500 employee cap, depending on the degree of parental control.
The Paycheck Protection Program, although structured as a loan, is essentially a grant providing small entities with sufficient liquidity to cover salary costs as long as the loan cancellation requirements are met. Under the program, up to the entire principal amount of the loan may be forgiven (1) if the loan proceeds are used on salary costs for eight weeks after loan disbursement and (2) the borrower maintains employee and compensation levels. The loan also allows entities to rehire employees on leave. We expect the SBA to issue additional loan cancellation guidance soon.
How does the CARES Act expand EIDL?
The EIDL program provides financial assistance to small businesses and nonprofits suffering substantial economic harm as a result of the COVID-19 pandemic. A working capital loan from EIDL can help nonprofits meet necessary financial obligations that they might have met had the pandemic not taken place.
As we discuss in response to questions 3 and 4 below, there are limits to the loans an entity can receive under the CARES Act. Read on to find out which loan might be the best fit for your organization.
Are there any limits on the use of Paycheck Protection Program loan proceeds?
To be eligible for loan cancellation, the paycheck protection program loan proceeds must be used for:
- Salary costs, including fringe benefits (capped at $ 100,000 annualized for each employee);
- Interest on mortgage bonds contracted before February 15, 2020;
- Rent, under leases in effect before February 15, 2020; and
- Utilities, for which the service started before February 15, 2020.
However, no more than 25% of the loan proceeds can be used for non-salary costs.
The total loan amount available under the Paycheck Protection Program Loan is the lesser of $ 10 million or 2.5 times the total average monthly salary costs for the period of one year prior to the due date. Requirement. If salary costs are seasonal, entities can choose to use the average monthly payroll between February 15, 2019 and June 30, 2019 instead, excluding costs greater than $ 100,000 on an annualized basis for each employee. The interim final rule provides a payroll-based formula and examples.
Are there any limits to the use of the EIDL loan proceeds?
Only specific organizations are eligible for an EIDL. In general, the following entities that have suffered substantial economic damage caused by the pandemic and provided that they existed on January 31, 2020, are eligible:
- Small businesses with less than 500 employees
- Cooperatives, ESOPs and small tribal businesses with less than 500 employees
- Unique owners
- Independent contractors
- Most nonprofits (existing EIDL limits apply – excluding nonprofits of a certain size and excluding religious institutions and certain other charities)
Proceeds from the EIDL loan are expected to be used to cover ordinary and necessary operating expenses and reductions in working capital incurred in the context of the COVID-19 pandemic. This includes:
- Fixed debts,
- Accounts payable, and
- Other bills that an entity cannot pay due to the impact of the pandemic.
Nonprofit organizations seeking funds through EIDL can request an “advance grant” of up to $ 10,000, payable three days after applying for the EIDL program. The advance is to be used to pay for eligible and impending operating costs related to the COVID-19 pandemic, such as increased cost of materials, payroll, rent, or mortgage payments. Nonprofit organizations do not have to repay the grant advance, even if the nonprofit is subsequently denied an EIDL.
How does an entity apply for the Paycheque Protection Program?
The program grants loans on a “first come, first served” basis, with no applications accepted after June 30, 2020. There are no guarantees, personal guarantees or application fees under the program. paycheck protection. Here is the final application form issued by the US Treasury Department.
How does an entity request EIDL?
Small businesses and nonprofits wishing to apply for an EIDL should apply online through the SBA’s secure online disaster loan assistance application.
Can entities apply for more than one loan?
It depends. An eligible borrower can only receive one loan from the Paycheck Protection Program. An entity may be limited in obtaining an EIDL if it has received another loan under the Paycheck Protection Program and the loans are used for the same. On the other hand, an entity could receive an EIDL and a loan under the Paycheck Protection Program if they are used for different purposes. Additionally, applicants may have an existing SBA disaster loan and still qualify for an EIDL disaster loan; however, the loans cannot be consolidated.
What factors should an entity take into account when choosing between the two types of loans?
Below is a summary of the main loan terms for the Paycheck Protection Program and the EIDL. The entity must evaluate the various loan parameters to determine which loan makes the most sense for its business.
For a more detailed comparison of loan programs available under the CARES Act, see the CARES Act Lending Options Table prepared by the National Council of Nonprofit Organizations.