The President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27. Below is our reaction to and summary of the legislation.
Information about Loan Programs and Tax Credits
- Treasury Department information on loan programs for borrowers and lenders
- COVID-19 Small Business Guidance and Loan Programs (SBA)
- Economic Injury Disaster Loan information (SBA)
- Paycheck Protection Program loans [SBA 7(a)]
More information on the Paycheck Protection Program
Regarding the Paycheck Protection Program (PPP), a letter from the Colorado Office of Economic Development and International Trade and the Secretary of State says that "...the first step in accessing these forgivable loans is to prepare the materials necessary to apply, That includes confirming your eligibility, gathering the necessary records (payroll, rent, utilities, tax and bank records), estimating the eligible amount of your forgivable loan, and contacting your lender to make sure they will participate."
For nonprofits applying for SBA loans, Small Business Development Center representatives are available to answer your questions through the COVID Economic Hotline at (303) 860-5881.
Lenders who need assistance accessing SBA's E-Tran system to process loan guarantee requests may call the Lender Customer Service Line at 1-833-572-0502.
SBA PPP Regulations
On May 14, Colorado Nonprofit Association submitted comments on SBA's PPP regulations to ask for the following changes and clarifications:
- Eliminate the requirement for 75% of loan funds to be spent on payroll and 25% on non-payroll expenses
- Avoid a one-size fits all interpretation of the requirement to certify that this assistance is necessary to ensure continued operations
- Ensuring nonprofit board members are not held liable for unintentional misuse of PPP funds
- Deferring the start of loan payments for one year rather than six months
- Increasing the maximum maturity date to either ten years or following a clear milestone of economic recovery
- Allow employers to borrow less than the maximum amount of the payroll formula
- Indicate that SBA's Alternative Size Standard applies to nonprofits with over 500 employees seeking PPP funds.
- Clarify how nonprofits should report payroll expenses under Rule (2)(E) for positions covered by government funds.
- Clarify how nonprofits should respond to questions on the PPP application related to ownership.
- Clarify whether nonprofits' related business activities may be considered for separate loans under PPP.
- Provide aggregate data specific to the nonprofit sector about PPP loan awards.
Analyses of the Bill
- Navigating the CARES Act by Independent Sector
- Loan program information from National Council of Nonprofits
- CARES Act webinar from National Council of Nonprofits
- Analysis from The National Council of Nonprofits
- Analysis from the North Carolina Center for Nonprofit Organizations
We expect the CARES Act will have many positive impacts on nonprofit organizations challenged by the COVID-19 crisis including the following:
- Access to small business loans for nonprofits with fewer than 500 employees. Loans can be forgiven if nonprofits can maintain their current staffing levels.
- Unemployment relief for many employees and nonprofit employers. This includes an additional $600 per week over the next four months for people who lose their jobs due to COVID-19. Also, the federal government will pay for 50% of unemployment claims for self-insured nonprofits.
- All taxpayers can deduct up to $300 of their charitable giving in 2020. This applies regardless of whether a taxpayer itemizes deductions or takes the standard deduction.
- Additional funding for federal programs that support the work of nonprofits and the people they serve (see funding increases below)
- Direct payments to households. Most households will receive $1,200 per adult and $500 per child in the coming weeks.
Unfortunately, the bill does have some gaps that we'd like for Congress to address in any future legislation addressing COVID-19 including the following:
- Self-insured nonprofits will still have to reimburse states for 50% of unemployment claims. With many nonprofits impacted by reduced earned income and donations due to COVID-19 and a likely economic contraction, paying 50% of claims would be a hardship. Congress could do more to help more nonprofits with these costs.
- Limiting the above-the-line charitable deduction to $300 does not provide a strong incentive for larger donations. Congress should model this policy after pending legislation that allows non-itemizer to deduct up to $4,000 per year of giving.
How the bill affects nonprofits
Paycheck Protection Program Loans [Emergency SBA 7(a) loans]
- Available through SBA qualified lenders for eligible nonprofits and small businesses with 500 or fewer employees
- Covers 2.5 months of the annual average cost up to $10 million for salaries, payroll, group health benefits, mortgage or rent payments, utilities, and interest on previously incurred debt
- Loans are at a fixed 1.0% annual interest rate per U.S. Treasury guidance
- No payments for the first 6-12 months with a two year-term for longer-term loans
- The loan covers the period between Feb. 15 and June 30 of 2020
- Forgiven if employers retain or rehire employees between March 1 and June 30. Forgiveness is reduced for employers that subsequently layoff employees or reduce pay
- Does not require creditworthiness test, collateral, or personal guarantees
Economic Injury Disaster Loans (EIDL)
- Eliminates creditworthiness requirements
- Appropriates $10 billion more to the EIDL program
- Provides up to $2 million per borrower
- Applies to payroll and benefits, debts, payable, and other payments that cannot be made due to a disaster
- 3.75% APR, 2.75% APR for nonprofits up to a 30 year term
- Eligible nonprofits and other applicants can get advances for $10,000 within three days of applying
- Loan is not forgivable
- Amount received in EIDL can be refinanced into a PPP loan but EIDL must be subtracted from forgiveness in PPP under any circumstance
Self-Funded Nonprofits and Unemployment
- Reimburses self-funded nonprofits for 50% of the costs of benefits provided to laid-off employees
Charitable Giving Incentive
- Non-itemizer deduction for total charitable contributions of up to $300 made in 2020 and claimed on tax forms next year
- Lifts the existing 60% income cap on annual contributions for those who itemize in 2020
- Raises the annual limit from 10 percent to 25 percent for corporate donations
- Food donations from corporations would be available to 25 percent, up from the current 15 percent cap
Employee Retention Payroll Tax Credit
- Refundable payroll tax credit up to $5,000 for each employee on the payroll
- Available if entity had at least a 50 percent drop in revenue in the first quarter of 2020 compared to 2019
- Available each quarter until the organization’s revenue exceeds 80 percent in 2020 of the same quarter in 2019
- All operations must be taken into account when determining the decline in revenues
- Employers receiving emergency SBA 7(a) loans would not be eligible for these credits
Mid-Size Loan Fund
- $425 billion loan and loan guarantee program to keep industries solvent through the crisis
- Does not include businesses that have received other relief from this act
- Mid-sized businesses, including nonprofits, with 500 to 10,000 employees are eligible for loans at an interest rate no higher than two percent
- Interest rate is no higher than 2 percent and there is no interest or repayments for the first six months
- Nonprofits accepting these loans must retain at least 90 percent of staff at full compensation
Updates and Resources
- The Federal Reserve and Treasury have issued guidance on this program but it is unclear if nonprofits are eligible based on present guidance.
- Colorado Nonprofit Association sent a letter to the Federal Reserve asking for either the Mid-Sized Loan program include nonprofits or for establishment of a separate program for nonprofits
Direct Payments to Households
- Up to $1,200 for adults and $500 per child ($3,400 for a family of four) to be sent out in a matter of weeks
- Payments phase out between $75,000 and $99,000 for individual filers
Expanded Unemployment Insurance
- Available for workers who are furloughed, gig workers, and freelancers
- Increases payments by $600 per week for four months on top of state unemployment payments
Amendments to the New Paid Leave Mandates:
- Lowers the amounts employers must pay for paid sick and family leave to the amounts covered by the refundable payroll tax credit under the Families First Act
- Up to $511 per day for employee sick leave or $200 per day for family leave
- $150 billion for a state, tribal, and local Coronavirus Relief fund
- $130 billion for hospitals
- $30 billion for education
- $25 billion for transit systems
- $15.5 billion for the Supplemental Nutrition Assistance Program
- $8.8 billion for child nutrition programs
- $5 billion for the Child Care Development Block Grant
- $4 billion for Emergency Solutions Grants to help people experiencing homelessness or at risk of losing their homes
- $3 billion in rental assistance for low-income families
- $1 billion for the Community Services Block Grant
- $750 million for Head Start
- $450 million for The Emergency Food Assistance Program (TEFPAP) for nonprofit food banks
- $400 million in election grants to support vote by mail, early voting, and online voter registration programs
- $75 million for the National Endowment for the Arts and National Endowment for the Humanities, which support many arts and cultural nonprofits
- $50 million for legal services
More information about the bill language