Last updated: April 27, 2020, 8:30 pm ET.
Hello, friends & family in the nonprofit world. Thank you for all of the heroic work you are doing in this difficult time.
This guide is intended to help nonprofits with fewer than 500 employees navigate the loans made possible by the CARES Act. Specifically, it will focus on the small business lending facility (section 1101-1107), also known as the Paycheck Protection Program (PPP).
This guide is being continually updated as new information becomes available. If you have suggested changes or updates, please email Jenny Xia Spradling (Jenny@FreeWill.com).
Our goal is to help your organization survive and thrive in this moment. We hope this is helpful as we get through this together.
Sincerely,
Jenny & The FreeWill Team
Disclaimer: FreeWill is not a legal or financial advisory firm. The following should not be taken as legal or financial advice. It is a summary of the guidance that we have seen so far, from these resources.
Paycheck Protection Program Loan terms
Additional state-specific loans
Summary of Loans Available to Small Nonprofits from Stimulus Package
The Coronavirus Aid, Relief, and Economic Security (“CARES”) bill passed on Friday, March 27.
The Small Business Lending Facility (Section 1101-1107), also known as the Paycheck Protection Program (PPP), is a $350B program for businesses and nonprofits with fewer than 500 employees. This part of the stimulus package has the most generous loan terms, and the fewest restrictions. Part or all of this loan turns into a grant for businesses and nonprofits that retain their employees.
The Small Business Association (SBA) put out final guidance on the PPP here. They have also published answers to Frequently Asked Questions here.
The first $350B ran out in a couple of weeks. The SBA dispersed more than 1.6M loans during the first round of funding.
Congress has approved another $310B in fundraising for the same program. This second round of funding started to be available on April 27, 2020.
There are other options for nonprofits including state-specific loans, the Employee Retention Payroll Tax Credit ($10,000 per employee, may preclude your access of PPP loans), and Economic Injury Disaster Loans ($2M limit, 2.75% interest rate for nonprofits, SBA Form 5, may preclude your access of PPP loans). That said, the focus of this guide is on the PPP, because they are likely the largest and most generous loans available for most nonprofits.
Requirements for Receiving a Loan
- Your nonprofit started on or before Feb 15, 2020. 501(c)(3) and 501(c)(19) organizations are eligible, but 501(c)(6) organizations are not eligible.
- You pay employee salaries.
- You have fewer than 500 employees, including part-time employees.
- You have NOT used the Refundable Employee Retention Credit (Section 2301)
- This is a refundable credit of 50% of wages paid up to a total of $10k per employee for businesses that have seen operations suspended by government order or whose gross receipts fall by a certain amount.
Paycheck Protection Program Loan Terms
The maximum loan amount is whichever is smaller: $10 million OR 2.5 times your monthly payroll over the past 12 months. (For most nonprofits, the 2.5X monthly payroll will be the limiting factor.)
What counts as monthly payroll?
- Salaries, wages, commissions, cash tips for full-time and part-time employees
- Payments for vacation, leave, severance
- Group healthcare benefits, retirement benefits
- State or local taxes on employee compensation
What does not count as monthly payroll?
- Compensation to any individual in excess of an annual salary of $100,000. This means that for each employee whose salary is above $100,000, the total monthly payroll that this employee counts for is $100,000 / 12 = $8,333.33.
- Compensation of employees whose principal place of residence is outside the US.
- Compensation of contractors, since they can apply on their own.
- Federal employment taxes imposed or withheld between February 15,
2020 and June 30, 2020, including the employee’s and employer’s share
of FICA (Federal Insurance Contributions Act) and Railroad Retirement
Act taxes, and income taxes required to be withheld from employees. - Qualified sick or family leave for which credit is allowed under the Family First Coronavirus Response Act.
Can you give me an example of how to calculate my maximum loan amount?
Yes! Let's assume you have 30 employees in total. Of these, 10 employees have total compensation (including salaries, benefits, commissions, etc.) of $60,000, 10 employees have total compensation of $100,000, and 10 employees have total compensation of $120,000.
For each employee paid $60,000, the monthly payroll that counts is: $60,000/12 = $5,000.
For each employee paid $100,000, the monthly payroll that counts is: $100,000/12 = $8,333.33
For each employee paid $120,000, the monthly payroll that counts is: $100,000/12 = $8,333.33.
So in total my monthly payroll that can be counted towards the PPP loan maximum is $5,000*10+$8,333.33*10+$8,333.33*10 = $216,666.66.
Then to calculate my loan maximum I multiply my eligible monthly payroll by 2.5: $216,666.66*2.5 = $541,666.50.
Because this amount is less than $10,000,000, I can take out the full amount of $541,666.50 in loans from the PPP program.
Here is a worksheet that can help with the calculation. (Thanks to John Jensen at Kanakuk Ministries for the contribution!)
What you can use the loan for:
- Employee salaries and related expenses (e.g. payroll, health insurance premiums)
- Rent
- Mortgage payments
- Utilities
- Sick leave
Note: You CANNOT use it for prepayment of principal of existing debt obligations. (This will be very unlikely for most nonprofits.)
Loan term: 2 years
Interest Rate: 1%
Prepayment Penalties: None
Deferment of Interest Payments: The principal, interest, and fees can be deferred for 6 months (however interest will accrue during these 6 months)
Secured status: Loans are unsecured and will not prime existing debt in terms of payment priority. It will also not require personal guarantees from borrowers, which is different from many SBA loans.
How the Loan is Forgiven (AKA how the loan becomes a grant you do not need to pay back.)
The portions of the loan used for payroll (same calculation used to calculate the loan maximum above), rent, mortgage payments, utilities, and sick leave that are incurred in the 8-week period starting on the loan’s origination date are eligible for loan forgiveness.
Restrictions on loan forgiveness:
- The amount of loan forgiveness cannot exceed the original amount of the loan.
- Not more than 25% of the forgiven loan amount can be spent on non-payroll items.
You will have to discount this amount if you had layoffs during the period of Mar 1 to June 30. Here’s how:
- If 100% of staff is kept on payroll between March 1 and June 30, 100% of the above amount is forgivable.
- If less than 100% of staff are kept on payroll between March 1 and June 30, the amount that is forgivable is lowered proportional to the number of employees laid off.
- If there is a reduction in pay of any employee beyond 25% of their prior year compensation, the amount that is forgivable is lowered proportional to the further pay reduction (beyond 25%).
Finally, if you layoff employees, but re-hire them before June 30, 2020, that will not count against you.
Step 1: Prepare ASAP
- Prepare the information needed in the the latest sample PPP application form (SBA 2483 Form).
- Additional documentation will be required. The specific documentation will be different on a lender by lender basis. We've seen applications that ask for a subset of the following:
- Date the nonprofit started
- Your nonprofits' official address
- Incorporation documents
- US-based employee headcount over the past 12 months
- Employee names of those making >$100K over the past 12 months
- Monthly payroll over last 12 months (payroll processor records, payroll tax filings, or Form 1099-MISC)
- Tax return for 2018
- Tax return for 2019 OR Balance sheet for 2019 and Profit and loss sheet for 2019
Also, If your nonprofit has templates for any of the items above, just let us know and we’ll share them with the rest of this community after deleting all of your info! (Just email them to Jenny@FreeWill.com)
Step 2: Apply & Receive Funds
Applying for the loan:
- Find the right lender. (See below)
- Complete the lender’s application by June 30, 2020. Every lender will have its own process and capacity to approve and monitor loans.
- It may be a few weeks before the funds hit your bank account. Historically SBA loans have taken around 1 month to get processed, but the government is working on a way to give "same-day" turnaround between loan application and receiving the funds.
Finding a lender:
- Here is a list of banks who are participating in the PPP program.
- Here is a list of the top 100 SBA 7(a) lenders to date.
- Some banks may only offer the loan to existing clients. There may be advantages to going through your own bank, because less verification will be required from "Know Your Customer" rules. However, not all banks will be offering the program.
- Here are some lenders that are accepting loan applications from non-clients:
-
Live Oak Banking Company https://www.
liveoakbank.com/paycheck- protection-program-sign-up/ -
Newtek Small Business Finance https://partners.
newtekone.com/caresact/ business-lending/ -
The Huntington National Bank https://www.huntington.
com/coronavirus/business- resources -
ReadyCapital https://ppp.
readycapital.com/ -
Stearns Bank National Association https://www.
stearnsbank.com/cares-act -
Manufacturers and Traders Trust Company https://www.mtb.com/
help-center/be-informed- business/coronavirus#the_nav_ pills -
Fountainhead SBF https://www.
fountainheadcc.com/ppp/ -
America First FCU https://www.americafirst.
com/business-relief.html
Getting the loan forgiven:
- The loan can be eligible for forgiveness at the end of the 8-week period after you take out the loan. It is likely that there is additional documentation that will be required to apply for loan forgiveness, including payroll, rent, utilities, and mortgage payments over the 8-week period.
- Consider that since the covered period for loan uses ends on June 30, 2020 and the maximum loan forgiveness period is eight weeks, any loan obtained after May 5, 2020 may not enjoy the full forgiveness period.
- Borrowers will work with lenders to verify covered expenses and the proper amount of forgiveness.
Additional Resources
- Additional state-specific loans
- Email templates & phone scripts for fundraising during this crisis
- Webinars on kind & effective fundraising during this crisis
- Sample email & talking points for rent abatement
- More information on the SBA Economic Injury Disaster Loan Program (Note: This is a different type of loan and is not forgivable. The usage of a EIDL may prohibit access to a PPP loan.)
- More information on the Employee Retention Payroll Tax Credit (Note: This is a tax credit. The usage of this payroll tax credit may prohibit access to a PPP loan.)
- Facebook is giving out $100M in cash and facebook credit grants to eligible businesses and nonprofits with 3 to 50 employees.
- Visa is giving out $210M out of their foundation to support nonprofits and small businesses.
Additional State-specific Loans
Here are some additional resources that may be useful to you.
California Small Business Disaster Loans
San Francisco
San Francisco COVID-19 Small Business Resiliency Fund
- Provides loans of up to $10,000 for businesses with 1-5 employees to cover rent and salaries
- Eligibility: Demonstrate loss of >25% of revenue, have less than $2.5 million in gross receipts, and be licensed to operate in San Francisco
- How to apply: Fill out an online application here and email it to investsf@sfgov.org, along with proof of payroll costs and proof of lost revenue.
Moratorium on evictions for SMBs affected by COVID-19
- Effective for 30 days starting March 17. Mayor has the capability to extend for another 30 days.
Los Angeles
City of Los Angeles Small Business Emergency Microloan Program
- Provides emergency microloans to businesses that provide low-income jobs. Loans are between $5,000 - $20,000. Loans repayable within 6 months - 1 year carry 0% interest. Five-year loans carry 3-5% interest.
- Eligibility: Have a “reasonable and responsible” credit history, use loan for working capital only, and business must be located in City of Los Angeles. If you own over 20% of the business, you must guarantee the loan.
- How to apply: Apply online here. Provide business and personal tax returns, three months of bank statements, and business and personal financial statements.
Moratorium on evictions for SMBs affected by COVID-19
- Effective through March 31.
Colorado Disaster Loan Program
Denver
Denver Small Business Emergency Relief
- Provides cash grants of $7,500 for businesses whose industries are especially impacted by COVID-19.
- Eligibility: SMBs that can’t operate due to COVID-19, inc. restaurants, retail shops, barbershops, and nail salons.
- How to apply: Distributed monthly, first application deadline is March 31. Businesses can fill out an interest form here.
Florida Small Business Disaster Assistance Loans
Florida Small Business Emergency Bridge Loan Program
- Provides loans of up to $50,000 (as much as $100,000 in special cases) for COVID-19 affected small businesses. Loans designed to provide short-term funding and to be repaid once businesses can secure alternative funding. Interest-free for one year, after which interest rises to 12%.
- Eligibility: For-profit SMBs with 2-50 employees. Previous bridge loans must have been repaid.
- How to apply: Apply online here by May 8. Provide business and individual tax returns and employer tax documentation.
Illinois Small Business Disaster Assistance
Chicago
Chicago Small Business Resiliency Fund
- Provides low-interest loans of up to $50,000 to small businesses. Repayment terms up to five years. Loan amount depends on revenues prior to COVID-19 outbreak.
- Eligibility: SMBs with <$3 million in revenue and <50 employees. Must prove a 25% drop in revenue and have no current tax liens or legal judgments.
- How to apply: Apply online here. Include most recent tax return, bank statements going back to October 2019 plus photo ID.
Michigan Disaster Assistance Loan
Michigan Small Business Relief Program
- Provides grants and loans to small businesses impacted by COVID-19, starting as of April 1, 2020. Grants will be up to $10,000 to cover working capital. Loans will be $50,000 - $200,000 at 0.25% interest.
- Eligibility: Grants available to companies with <50 employees. Loans available to businesses with <100 employees that are unable to source alternative credit. Companies applying for both grants and loans must prove income loss.
- How to apply: Applications not currently available. Check the Michigan Economic Development Corporation website here for updates.
New York Disaster Loan Assistance
New York City
New York City Employee Retention Grant Program
- Provides grants of up to $27,000 to small businesses to cover 40% of payroll costs for two months.
- Eligibility: Businesses with 1-4 employees that can demonstrate loss of 25% of revenue due to COVID-19. Businesses must be located in one of NYC’s five boroughs and have been operating for >6 months, with no current tax liens or legal judgments.
- How to apply: Apply online at the New York City Department of Small Business Services here. Need to submit documentation proving revenue decrease versus this time last year, along with payroll and bank account records.
New York City Small Business Continuity Fund
- Provides interest-free loans up to $75,000 to cover revenue loss.
- Eligibility: Companies need to have <100 employees, and be located in one of NYC’s five boroughs. Need to demonstrate at least 25% revenue loss and have no tax liens or legal judgments, and prove that you’re able to repay the loan.
- How to apply: Applications aren’t currently open, but businesses can fill out an interest form with the New York City Department of Small Business Services here. In the meantime, they should prepare required documents including 2019 tax returns, bank statements, and point of sale reports.
Credits
- SBA website for the PPP
- Covid-19 financial resources for startups
- Small Business Lending Facility for Venture-Backed Companies
- Lender Match to find the right lender
- Wall Street Journal: How to apply for Small Business Loans
- First Republic Bank's Samir Kaji
- Cooley SBA programs Under CARES Act
- Forbes: PPP is up and running again
