Please note: This blog is current to the date of its publication, Thursday, April 2. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.
The Coronavirus Aid, Relief and Economic Security (CARES) Act is intended to assist almost all segments of the U.S. economy, including nonprofit organizations. The Paycheck Protection Program (PPP) is one component of the legislation that specifically addresses nonprofits by offering incentive and reassurance to employers that keep employees on the payroll during these uncertain times.
This program is nuanced and has several eligibility requirements. Below, SST has provided an analysis of the PPP, as well as recommended next steps for nonprofit organizations.
About the Paycheck Protection Program (PPP)
The PPP will be administered by the Small Business Administration (SBA) and makes low-interest loans available to businesses and nonprofit organizations with 500 or fewer employees. The loan is calculated based on the organization’s average monthly payroll costs and includes an interest rate not to exceed 4%. These loans then turn into grants that are forgiven, in whole or part, if the employer/borrower maintains staff levels and limits compensation reductions to no more than 25% for an eight-week period following receipt of the loan. Lenders will include approved local banks and other SBA-approved entities.
The CARES Act allocates $349 billion for the PPP and limits the maximum loan to $10 million per borrower. The borrower is required to have been in existence on March 1, 2020, must be exempt from federal income taxes as a 501(c)(3) organization and have fewer than 500 employees.
As indicated above, the available loan is based on certain defined “payroll costs” (outlined below). If the organization was in business between Feb. 15, 2019, and June 30, 2019, the maximum loan is 2.5 times the average monthly payroll costs during the one-year period before the date of the loan. If the organization was not in business during the above time period, there’s a secondary period that might apply. Contact your SST account manager for more information.
“Payroll costs” DO include the sum of any form of compensation with respect to employees, including:
- Base compensation
- PTO – including parental, family, medical or sick leave
- Payment required under provisions of group health benefits, including premiums
- Retirement benefits
- State or local taxes assessed on the compensation of employees
Permitted uses of the loan proceeds include:
- Employer group health care benefits
- Interest on mortgage obligations
- Interest on other debt incurred prior to Feb. 15, 2020
NOTE: “Payroll costs” DO NOT include compensation of an individual in excess of an annual salary of $100,000, prorated for the covered period, FICA taxes, qualified sick and family leave for which a credit is allowed under the FFCRA, or employees who reside outside the U.S.
Nonprofits should take the following next steps before contacting your banker or SBA lender:
- Gather information and documentation of your average monthly payroll costs and calculate the maximum loan amount you may be eligible for (generally calculated as 2.5 times your average monthly payroll cost)
- Determine what portion of this maximum loan your organization will spend on permitted uses within 8 weeks of receiving the loan (This is the maximum amount that can be forgiven.)
- If you don’t use all of your loan amount on the permitted purposes outlined above, you can repay the difference without penalty
Applications will be accepted beginning Friday, April 3. Submit your application as soon as possible!
In addition to the PPP, organizations also should consider exploring the Economic Impact Disaster Loan (EIDL), another option under the CARES Act.
SST is here to help evaluate every option and find the best assistance plan for your organization during this uncertain time. Contact your SST account manager today for guidance, or visit our COVID-19 resource page for additional updates.
Thanks to SST Partner and CEO Bill Sims for providing the content for this blog post.