The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the Payroll Protection Program (PPP) back in March of 2020 to provide eligible entities, including not-for-profit (NFP) organizations, with forgivable loans to assist organizations struggling with the uncertainty brought on by the COVID-19 pandemic. In the 10 months since the Act was created, the rules and eligibility requirements relating to PPP loans and forgiveness of the loans have been clarified or changed multiple times. Below is a high-level summary of the guidance based on the rules and interpretations as of January 17, 2021.
First draw PPP loan
Qualifying NFP organizations that did not receive a PPP loan during the initial round of funding in the Spring/Summer of 2020 are now eligible to apply for a first draw PPP loan. Additionally, the Small Business Administration (SBA) has expanded the definition of eligible borrowers to include certain 501(c)(6) tax-exempt organizations.
Opportunity to modify first draw PPP loan
Due to the changes in the guidelines surrounding the first draw PPP loans, borrowers who received their first draw PPP loan prior to December 27, 2020 may be eligible to increase their first draw PPP loan balance. There are a few different opportunities to qualify for a loan modification.
- If a borrower initially obtained a first draw PPP loan but returned the full amount, the borrower is now able to reapply for a first draw PPP loan based on the current eligibility rules.
- If a borrower returned a portion of the first draw PPP loan, the borrower may reapply for an amount equal to the returned amount.
- If a borrower did not initially accept the full amount of the PPP loan that it was approved for, the borrower may now request an increase in loan funds up to the amount initially approved.
Opportunity to apply for a second draw PPP loan
Organizations that were particularly impacted by the COVID-19 pandemic may be eligible to receive a second draw PPP loan. To be eligible, the organization must have all of the following:
- Have been in operation on February 15, 2020 and received a first draw PPP loan.
- Have 300 or fewer employees; this is a decrease from the 500 threshold used in first draw PPP loans.
- Have a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. Organizations can also show a 25% reduction in gross receipts for the entire year of 2020 compared to 2019. For NFP organizations, gross receipts is defined per code section 6033 and is the amount of total revenue reported on the organization’s Federal Form 990 adjusted as follows:
- IRS Form 990: The sum of the lines 6b(i), 6(b)(ii), 7b(i), 7b(ii), 8b, 9b, 10b, and 12 (column (A)) of Part VIII.
- IRS Form 990-EZ: Sum of lines 5b, 6c, 7b, and 9 of Part I.
- For more detail on gross receipts see the IRS guidance.
- Have used or will use all first draw PPP loan funds on eligible expenses on or before the date of the second draw PPP loan disbursement. This includes any additional first draw PPP loan funds made available by the modifications outlined above. (Note: While this is not a rule per the Treasury, it has been noted that some banks are requiring borrowers to file for forgiveness on the first draw PPP loan before approving the second draw PPP loan.)
- Meet the necessity requirement. The following is a link to the Loan Necessity Questionnaire (Non-Profit Borrowers). This Questionnaire is required for borrowers with loans of $2 million or more. Organizations that do not meet the $2 million threshold should still review the questionnaire to ensure that they meet the necessity requirement. https://www.sba.gov/document/sba-form-3510-paycheck-protection-program-loan-necessity-questionnaire-non-profit-borrowers
Modifications to PPP Forgiveness
The SBA provided additional allowable expenses to be used when calculating forgiveness for both first draw and second draw PPP loans. Allowable expenses now include:
- Covered operations expenditures – certain payments for business software or cloud computing services that facilitate business operations.
- Covered property damage costs – costs related to property damage, vandalism or looting due to public disturbances that took place in 2020 that were not covered by insurance or other compensation.
- Covered supplier costs – certain payments made by a borrower to a supplier of goods.
- Covered worker protection expenditures – operating or capital expenditures to facilitate compliance with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established by State or local governments during the period March 1, 2020 through the date on which the national emergency with respect to the COVID-19 expires.
Economic Injury Disaster Loan (EIDL) advances are no longer subtracted from PPP loan forgiveness. For those organizations that have applied for and received forgiveness under the old rules, the SBA has indicated that this provision is retroactive and borrowers will be made whole, with interest.
PPP borrowers are now also eligible to utilize the Employee Retention Credit (ERC). This is retroactive to March 13, 2020. However, it is very important to note that a borrower cannot “double dip”— wages used for the ERC cannot also be used for PPP forgiveness. Organizations eligible for the ERC in 2020 are more likely to utilize up to the 40% of nonpayroll costs in forgiveness in order to maximize both PPP and ERC. See ORBA’s Client Alert on ERC that goes into the rules in more detail.
It is very important to remember that “double dipping,” which is using an allowable cost for PPP forgiveness that is also funded with another federal grant is prohibited. Many organizations may find that the enhanced forgivable cost categories are already being used to satisfy other grants.
The information above is a high-level summary of some of the changes to the PPP loan program. ORBA will continue to send Client Alerts as appropriate. As always, feel free to contact your ORBA advisor with questions.
Significant Changes in the Paycheck Protection Program in Recent Legislation
Paycheck Protection Program Reopening for First and Second Draw Loans
For more information, contact Alison Fetzer at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.