Nonprofits Need to Prepare
Update May 27: The SBA announced changed guidelines for the PPP concerning loan forgiveness requirements and the SBA's ability to review any loan made under the PPP. Read the highlights from FMA.
- Need technical assistance with your application to the Paycheck Protection Program? TSNE is here to help you. Sign up for our 1-on-1 sessions. You can also watch a recording of our Q&A webinar about the application process.
On Thursday, April 23, Congress passed a bill providing additional funding to the Small Business Administration’s section of the CARES Act that applies to nonprofits. This bill adds an additional $310 billion to the Paycheck Protection Program (PPP) to keep workers at small businesses and nonprofits employed amid the economic downturn and the COVID-19 pandemic. An additional $10 billion dollars was added to the EIDL loan program that has been expanded to include agricultural companies.
This page provides an overview of the CARES Act loans available to nonprofits, guidance for organizations who have already applied, a step-by-step guide to apply for the Paycheck Protection Program, and some clarifications on the loan application itself.
The CARES Act contains two loan options for nonprofit organizations — Paycheck Protection Program and Emergency Economic Injury Disaster Loans (EIDL). You can see a comparison of the two loans below. The Paycheck Protection Program loan is eligible for forgiveness as long as your organization meets criteria around employment. In general, EIDL loans are NOT forgivable. Nonprofits and small businesses can apply for BOTH loans. Rules stipulate that PPP money and EIDL money cannot be used for the same things. For example, if you use PPP to cover payroll expenses you cannot use EIDL funds to also cover payroll.
More information on the differences between these loan programs are outlined below:
Applications that are currently in queue with their banks will be submitted to the SBA for funding first. Some banks may not be accepting new applications until those in queue have been processed.
It is currently unclear when applications for the second round of funding for the Paycheck Protection Program will be accepted, however, it is recommended that nonprofits prepare their applications as much as possible to be able to submit once the date is announced.
The Small Business Administration (SBA) has created a borrower fact sheet, linked here. Highlights of the PPP loan include:
- Loans to nonprofits with fewer than 500 employees in order to cover basic costs and keep staff employed through the crisis;
- Loans can be applied to payroll, health benefits, paid sick and family leave, mortgage interest, rent, utilities and debt interest;
- Loan amount is calculated by a formula based on the average total of monthly payroll in the prior year;
- Loans cover the cost of salaries up to $100,000 for employees making over $100,000/yr;
- Loans do NOT cover the cost of salaries for employees with principal residences outside of the United States;
- Loans do not cover independent contractor pay (they are eligible to apply as individuals);
- This loan will be eligible for “forgiveness,” essentially turning into grants if they are used for the purposes as outlined as long as certain other conditions regarding maintaining employment levels in accordance with the law are met;
- The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll);
- PPP loans have a maturity of 2 years and an interest rate of 1% for the amount that is not forgiven;
- Nonprofits need to apply through an SBA lender bank;
- Download the PPP application from the SBA (Please note that your SBA lender may have a modified version of the application. Check with them first).
- PPP loan rules require banks to fund loans within 10 days of approval by the SBA. Most nonprofits and businesses that were approved in the first round of funding reported that their funds were received within 1-5 days of approval.
Banks may require additional documentation. Here is a sample list of what you might need based on conversations with our bank:
- Articles of incorporation/organization;
- Bylaws/operating agreement;
- Drivers' licenses for primary application signer;
- IRS form 990;
- Payroll summary report with corresponding bank statement (If not available, employee pay stubs as of February 15, 2020 with corresponding bank statement and breakdown of payroll benefits).
If You Have Already Applied
- If you were denied funding by your bank, you can re-apply for PPP funding through a different bank for the second round. If you were denied by the SBA, you can not apply for another PPP loan.
- If you applied for funding, but your process was stalled — sit tight! Do not submit another application. Nonprofits and small businesses can only apply for one PPP loan per bank, so submitting another application could take you out of consideration.
- Contact your bank to make sure they still have your application and ask whether or not they will submit it when the SBA opens up for applications again. If they are not planning on submitting applications automatically, find out what their procedures will be for the second round of funding.
How to Apply
1. Contact Your Bank or Find an SBA Approved Bank
Only approved Small Business Administration lender banks can accept applications for PPP. Click here to see a list of SBA lender banks. If your regular bank is not an approved SBA lender, contact an approved bank immediately to open a relationship prior to sending in your applications.
NOTE: Banks are overwhelmed right now with this process, and may not be able to respond quickly to your inquiry. Banks may also not be accepting applications immediately.
2. Calculate Your Maximum Loan Amount
Loan amounts are calculated based your average monthly payroll costs from the last year multiplied by a factor of 2.5. That amount is subject to a $10 million cap. Only count the first $100,000 for salaries over $100,000 per year.
3. Complete the Loan Application
You can download the PPP application from the SBA here (Please note that your SBA lender may have a modified version of the application. Check with them first). See the bottom of the documents for clarifications on some items in the application.
All nonprofits applying to the CARES Act loan programs must make sure they have all the necessary documentation and triple check their application before turning it in to the SBA. Any organization that needs to submit additional documentation after the fact will likely be pushed to the end of the line and may be far less likely to get funding.
4. Submit Your Application and Supporting Documents to Your SBA Approved Lender Bank
Since loans will be in high demand, we recommend you be prepared to submit your application as soon as possible. In addition to your application, you will need to provide your bank with payroll documentation and any other documents requested by your specific bank lender.
Loan Application Clarifications
The loan application is designed with small businesses in mind, which can cause confusion for nonprofit organizations. Here are some clarifications that might help you during the application process:
Name of Primary Contact
Who signs your loan application depends on the structure of your organization and your by-laws. It should be someone in a leadership position, for example your Executive Director, Chief Executive Officer, or Board Chair.
List of Owners
501(c)3 nonprofit organizations are not privately owned by individuals. In this box, you should enter: None – 501(c)3 Charity
Question Sections (This section must be completed in order for the application to be valid.)
Questions 1-4 should be answered on behalf of your organization.
Questions 5 & 6 should be answered by the Primary Contact listed on the application.
The person identified as the Primary Contact at the top of the application should be the signee of the loan application.
This information is not meant to be used without consultation with a legal or financial professional.
- What You Need to Know About PPP Forgiveness
- Suggestions for PPP Forgiveness Documentation
- Tool to Track Your PPP Spending
Banks that are accepting applicants
Berkshire Bank is assisting new and existing clients with the PPP application. Please contact Karleen Porcena, VP and Relationship Manager of Berkshire Bank's My Banker Storefront, at email@example.com
This document is compiled for informational purposes only and does not constitute legal or financial advice.