Although we all are facing major changes and challenges in our school, work and homes caused by the spread of COVID-19, it is not-for-profit (NFP) organizations that are often on the “front lines,” working with our youngest, oldest and most vulnerable populations. Fortunately, there have been significant responses from our state, local and federal governments in terms of financial support.
This Client Alert summarizes some of the recent financial relief programs and initiatives applicable to many NFP organizations. There are many open questions and the information provided in this Alert may change once additional guidance is received.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
The CARES Act was signed into law on March 27, 2020. Some of the key provisions of the Act that pertain to NFP organizations include the following:
Paycheck Protection Program
This program was highlighted in a March 30 ORBA’s Client Alert, Paycheck Protection Program.
The Act provides funding through the U.S. Small Business Administration (SBA) for special emergency loans for eligible small businesses and NFP charitable organizations. The loan amount will be equal to the lesser of 2.5 times the average total monthly payroll (subject to certain employee compensation limits) or $10 million.
Provided the organization maintains certain levels of employment (both in terms of number of full-time equivalents and the amount that individual employees are paid compared to what they were paid in prior periods) during the eight weeks following the loan origination date, the loan may be forgiven in whole or in part. In essence, this turns the loan into a grant.
The loans do not require collateral and can be used for salary, health insurance premiums, rent, utilities, and interest on mortgages and certain other debt. The amount of the original loan that is not forgiven will revert to a standard loan with principal and interest payments deferred for six to 12 months, maximum interest at 4%, and a term of not more than ten years.
An organization can receive a Paycheck Protection Program loan and an Economic Injury Disaster Loan (EIDL) through the SBA as long as the loans are not used for the same purpose.
The SBA has not yet released all of the requirements for loans under this program. However, if the Paycheck Protection Program is of interest to you, we strongly recommend that you contact your bank now so that you can gather the necessary information and apply as soon as the bank is ready to begin accepting loan requests. Lenders will ask borrowers for a good faith certification that the loan is necessary to support ongoing operations and that the borrower will use the loan proceeds to retain workers and maintain payroll and/or to make mortgage interest, lease and utility payments. Information that your bank will want as part of the application process may include: Current and past financial information; organizing documents; detailed information about payroll, including number of employees and salary amounts for 2019 and 2020; building lease or mortgage information; and utility payments.
Coronavirus Economic Stabilization Act of 2020 and its Emergency Relief and Taxpayer Protections
The U.S. Treasury Department will create a program to provide financing to banks/lenders that will make direct loans to eligible businesses, including NFP organizations with between 500 and 10,000 employees.
The loan must be necessary to support the ongoing operations of the organization. Also, the organization must retain 90% of its workforce as of March 24, 2020 through September 30, 2020, and no jobs can be outsourced or offshored during the loan period and for two years after repayment of the loan.
The organization will need to certify that it intends to restore at least 90% of its workforce that existed as of February 1, 2020, and to restore all compensation and benefits to the workers no later than four months after the termination of the public health emergency, which was declared by the Department of Health and Human Services on January 31, 2020. There are also limits on certain employee compensation.
Principal and interest payments on the loan will be deferred for the first six months, interest at 2% and the loan matures in not more than five years. There is no forgiveness of the loan under this program.
Charitable Giving Incentive
Includes an above-the-line deduction for charitable cash contributions up to $300 made in 2020 for all taxpayers that do not itemize deductions.
The Act also increases the annual limit on cash contributions for individuals who itemize from 60% to 100% of adjusted gross income. For corporations, the Act increases the annual limit from 10% to 25% of taxable income and increases the annual limit from 15% to 25% for food donations.
Employee Retention Credit
The Act creates a refundable payroll tax credit of up to $5,000 for each employee when certain conditions are met. The credit applies to wages paid from March 13, 2020 to December 31, 2020. The credit also applies to most NFP organizations that were in business in 2020 and for which their operations were fully or partially suspended due to COVID-19. The credit is not available to employers who receive loans under the Paycheck Protection Program.
Delay of Payment of Employer Payroll Taxes
The Act allows most employers to defer the payment of the employer portion of 2020 Social Security taxes, with 50% due by December 31, 2021 and 50% due by December 31, 2022. The deferral is not available to employers who receive loans under the Paycheck Protection Program.
Significant Spending by Sector
The Act also calls for significant funding to certain business sectors, including hospitals, transit systems and schools.
Funding for schools is intended to be used for the following purposes:
- Supplies for cleaning and sanitizing schools and school buildings;
- Coordinating long-term school closures, including meals, technology and serving students with disabilities;
- Buying technology, including connectivity, to help students continue learning, including adaptive equipment for students with disabilities;
- Efforts to help students from low-income families, students with disabilities, English language learners, racial and ethnic minorities, homeless students and students in foster care;
- Planning and providing in-person or online summer learning programs and after-school programs;
- Items that principals need in order “to address the needs of their individual schools”;
- Mental health services; and
- Continuing to provide services and employ existing staff.
SBA’s Economic Injury Disaster Loans (EIDL)
This is a separate SBA loan program administered directly through the Small business Administration. To learn more, see:
March 24, 2020 Client Alert, Small Business Administration Disaster Loans
Eligible entities may qualify for loans up to $2 million. Payments on the loan are deferred for the first 12 months and then payments of principal and interest at 2.75% (for NFP organizations) will be due for the remainder of the loan. Loan terms can extend up to 30 years.
State of Illinois COVID-19 Response Fund
The State of Illinois COVID-19 Fund will be used to provide financial resources to local community foundations and NFP organizations “to support residents in need of emergency food and basic supplies, interim housing and shelter, primary health care services, utility assistance, direct financial assistance for household expenses, supports for children and other vulnerable populations, and nonprofit safety and operations assistance.” The fund will collaborate with other similar funds.
Illinois Small Business Emergency Loan Fund
The Illinois Small Business Emergency Loan Fund will provide loans of up to $50,000 for small businesses in every industry. Businesses with fewer than 50 employees and less than $3 million in revenue in 2019 are eligible to apply. Payments on loans will be deferred for the first six months and then payments of principal and interest at 3% will be due for the remainder of a five-year loan term.
Chicago Small Business Resiliency Fund
The Chicago Small Business Resiliency Fund will provide low-interest loans up to $50,000 for eligible small businesses. To be eligible, a business must have suffered a decrease in revenue of greater than 25% due to COVID-19, employ fewer than 50 employees and had gross revenue of less than $3 million in 2019, and have a city business address or city business license.
With many if not all of the loan programs, the funds are limited and are typically issued on a first come, first served basis. We recommend you consider reviewing the terms of all such programs and contact your bank and/or other resource/fund soon.
Additional information on COVID-19 resources for NFP organizations can be found here:
Forefront and its COVID-19 Resources and Updates
The National Council of Nonprofits and a helpful chart on loans available to NFPs
For more information, contact Jim Quaid at [email protected] or call him at 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group. If you’d like to receive Client Alerts on timely topics that may affect your business, update your blog preferences.