Nonprofits Can Apply for Forgivable Loans Under the CARES Act

Nonprofits Can Apply for Forgivable Loans Under the CARES Act

As part of the CARES Act’s $2-T stimulus package, charitable organizations exempt under Internal Revenue Code section 501(c)(3) with 500 or fewer employees may apply for loans under the Paycheck Protection Program (PPP) provision of the Act.

All loans to qualifying charities will have the same terms, they are as follows:

  1. The interest rate is 1%
  2. The term is 2 years
  3. The amount of the loan is the lesser of $10-M or 2.5X the organization’s average payroll expense for the prior year
  4. At least a portion of the loan may be forgiven, see below.

These loans may only be used for the following types of expenses incurred by the nonprofit:

  • Payroll costs, including vacation, family, medical and severance pay, healthcare benefits, retirement benefits and payroll taxes;
  • Interest paid on other obligations of the organization;
  • Rent and Utilities

Loan proceeds may not be used to pay compensation to employees residing outside the country or to pay compensation to employees or independent contractors in excess of $100,000 annualized.

The amount of the loan that qualifies for forgiveness is loan proceeds used for 8 weeks of the allowable expenses summarized above. 

Only 25% of total amount forgiven may be used to pay interest, rent and utilities, 75% must be used to pay payroll costs. 

The amount of the loan that may be forgiven is reduced if the organization has reduced its payroll costs by employing fewer workers or paying employees less, as compared with the prior year.

Loan forgiveness may be requested from the SBA lender that is servicing the loan, and the request must be supported with documentation of the qualifying costs paid with loan proceeds. The CARES Act requires lenders to make a decision on loan forgiveness within 60 days of the request.

This loan program is administered by the Small Business Administration, through SBA lenders.

To qualify, in addition to having no more than 500 employees, an organization must certify to the lender that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” that it will use the loan funds to retain workers, or to make lease, interest and utility payments, and that it is not receiving other funding for the same expenses.

This stimulus provision is extremely attractive for charitable organizations with 500 or fewer employees, and should be promptly explored by charities that qualify.  The short and simple application form is here

Organizations should check with their regular bank to see if it is a qualified SBA lender, since it may speed the process to use your regular bank.

If not, a list of qualified lenders may be found on the SBA website.

Have a healthy weekend, stay home!

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