The Paycheck Protection Program (PPP)

A brief guide for nonprofits

Prepared by Nathaniel Moldoff, Development Consultant at Perry Davis Associates

DISCLAIMER: This is a brief guide compiled based on current publicly available information as a courtesy to our clients and colleagues and should not be construed as containing any tax or legal advice. Many details of this legislation are still being refined and may be amended at any time. Organizations are encouraged to consult with their own accountant and/or legal counsel.

See our COVID-19 resources page for more on how your nonprofit can address the challenges of the current crisis.

1. What is it?

A centerpiece of the CARES Act, passed by Congress on March 27, the Paycheck Protection Program (PPP) provides $350 billion in small business loans to keep people employed. This is an unprecedented opportunity for organizations to quickly access working capital in the midst of a global crisis.

2. What types of nonprofits are eligible?

This program is intended to cover most small and mid-sized businesses, including 501c3 nonprofits. Houses of Worship are automatically considered a 501c3 and are thus eligible. There are two main criteria: 1) The organization must certify that they have suffered economic harm from COVID-19. Virtually every nonprofit can claim this in good faith. 2) The organization has less than 500 employees. The program uses the Small Business Administration (SBA) guidelines to count employees for the purposes of eligibility.

3. Should my nonprofit consider applying?

Absolutely! The application process is intended to be as straightforward as possible and the terms are much more favorable than a standard small business loan. As will be explained below, at least a portion of the loans is designed to be “forgivable” and repayment can be deferred for at least 6 months.

4. What is the likelihood of getting it?

The main limitation is the anticipated volume of responses, so apply as soon as possible. The loans will be made on a rolling basis, until the funds run out. So long as you meet the very basic eligibility criteria listed above, and there are still available funds, it is safe to assume your application will be accepted.

5. What are the important dates to know?

The loans will be reviewed on a rolling basis and are available until December 31, 2020. In technical terms, there are two “covered periods” and their dates don’t exactly overlap:

  • Loan proceeds usage period: When you can use the money (8 week period starting from loan origination)
  • Loan forgiveness period: Eligible uses of loan proceeds will be forgiven at 100% if the organization maintains full payroll between 2/15/2020 and 6/30/2020. If the organization cuts staff or salaries during that period, the amount to be forgiven is pro-rated proportionally (more about loan forgiveness later).

6. How much money can my organization get?

The amount of the loan is based on the average monthly payroll costs for all US-based employees over the prior year, times 2.5, up to a maximum of $10 million. Payroll costs include: salary, paid leave, severance, group health benefits, retirement, state and local tax. For employees whose overall annual compensation exceeds $100,000, their allowable amount maxes out at $100,000. Employees based outside the US are excluded from these calculations.

7. What can my organization use the money for?

In addition to the payroll costs listed above, loan funds can be used for operational costs such as mortgage interest, rent, and certain utilities. Note that this only includes mortgage interest; prepayments and principal payments are not included. For rent payments, the lease must have been in existence prior to February 15, 2020. Also, bear in mind that these operational expenses are not included in the original calculation of the total loan amount – that’s based solely on payroll costs.

8. Will my organization have to pay back the loan?

As a starting point, proceeds used during the 8 weeks starting on loan origination date for eligible expenses – both payroll and operational costs – will be forgiven. This amount is adjusted in proportion to any reductions in staff (decrease in headcount as a result of lay-offs) or reductions in salary (e.g. pay cuts) before the end of the loan forgiveness period (June 30, 2020). The forgivable amount is reduced in proportion to how much the headcount and/or overall salaries have been cut between 2/15/2020 and 6/30/2020. See an example here. The balance that is not forgiven must be repaid at 0.5% interest within 2 years, and there will be an automatic deferment of payments for a period of 6 months. Interest will still accrue during the deferment period. There are no prepayment penalties.

9. How does my organization apply for the loan?

Get in touch with your bank. These loans must originate from approved Small Business Administration (SBA) lenders – there are about 100 banks that can do it now and authorities are working to increase that. The list of pre-approved banks, credit unions and other lenders can be found here. It is very likely that the bank you do business with may have an SBA loan officer. A sample application form can be found here. “The application asks who is your “Owner.” Based on advice we received from the Jewish Federations of North America, we suggest you fill in “None-501c3 charity”.

10. What can I do to get started now?

Even though banks are just starting to put in place systems to apply for these funds, don’t wait until your bank tells you their application portal is open to get started. Here are three things you should do now to get a head start:

  • Model how much you’d be eligible for and how much would be forgiven. JFNA has a good calculator template here.
  • Get in touch with accountants, auditors, lawyers and banks to let them know that you intend to apply. They may be able to advise you through the process. Some banks have already started to create a queue of eligible clients for when their application systems become operational.
  • Get in touch with your board. Many organizations’ bylaws require the board to vote on and approve any loans taken out in the name of the organization. Determine whether this vote can be conducted by email or Zoom, in lieu of a formal meeting. To limit the burden on board members, also investigate whether a sub-group, such as a finance committee, can be empowered to take all steps necessary to prepare and submit the application on their own, without further board involvement.

11. How long will it take?

Originally, it was anticipated that banks would be able to review and approve these loans with a 15 day turnaround. Some experts are now saying that timeline is not feasible. Nonetheless, these are intended to be “rapid response” measures, so the whole process should be a matter of weeks.

12. I’ve seen a few different emergency grant and loan funds out there. Can I double dip?

Taking out a PPP loan makes you ineligible for some other Federal stimulus initiatives, such as the Economic Injury Disaster Loans & Grants (EIDL) Program or Employee Retention Credit. While the terms of the PPP are very favorable, in certain circumstances, you may be better off with one of those other two options – your accountant or legal advisor can help you determine this. If you are getting emergency funding from other state, local or private funding sources, then you can still take out a PPP loan, so long as they are not duplicative in purpose or amounts.

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