Specific to non-profits seeking financing to meet payment obligations related to payroll and benefits, rent, utilities, interest expense on mortgages and other debt (excluding principal payments on debt obligations), and other operational needs, the Paycheck Protection Program provides such entities access to debt financing with the following features:
- Available to all non-profit organizations described in Section 501(c)(3) of the Internal Revenue Code that are exempt from taxation under 501(a) of the Code that meet the SBA size qualifications under the Act (i.e., the greater of (1) 500 or fewer employees or (2) the size standard prescribed by the SBA for the industry in which the non-profit organization operates, if applicable)
- Individuals employed by the non-profit on a full-time, part-time or other basis are included in the count to determine eligibility based on size (under SBA regulations for its existing loan programs, volunteers of the non-profit who receive no compensation (including in-kind compensation) for work performed are not considered employees)
- Maximum loan amounts are equal to the lesser of $10 million and 2.5 times the average monthly payroll of the non-profit organization (measured over the 12-month period preceding the loan date)
- Non-taxable loan forgiveness is available for certain eligible expenses incurred by the non-profit during the 8-week period following the loan date (i.e., payroll costs, interest payments on mortgage obligations incurred before February 15, 2020, rent payments on leases in place prior to February 15, 2020, utility payments for services initiated prior to February 15, 2020), subject to reductions in the forgivable amount based on certain reductions in the number of employees or salary amounts during such 8-week period.
For additional information regarding the Paycheck Protection Program, please click here to access our FAQs About the Paycheck Protection Program for Small Businesses.
In addition, the CARES Act provides additional relief for charitable organizations and nonprofit entities elsewhere in the Act:
- “Tax-Exempt Organizations” (i.e., organizations described in Section 501(c) of the Internal Revenue Code that are exempt from taxation under 501(a) of the Code) are included among the entities eligible to receive the benefit of the newly established 50% payroll tax credit for retained employees
- “Private nonprofit organizations” are included among the types of entities that may apply for Economic Industry Disaster Loans (EIDLs) offered by the SBA (low interest loans up to $2 million with longer repayment terms (up to 30 years), that also now feature a $10,000 grant that does not need to be repaid even if the EIDL is not made (subject to certain required certifications); EIDL eligibility is based on an applicant being located in a disaster zone (now expanded to include all US states, territories and the District of Columbia) and is not able to access credit elsewhere
- The CARES Act also establishes a $454 billion Industry Stabilization Fund, aimed at capitalizing a Federal loan program (to be administered through private lending institutions) for certain businesses and “nonprofit organizations” with between 500 and 10,000 employees, that will feature low interest rates (not more than 2% per annum) and 6 months of deferred payments of principal and interest
- Additional grant funding for institutions of higher education through an Education Stabilization Fund established by the Act.
Many of these new programs are subject to establishment through additional regulations and Federal guidance, and we will provide additional updates regarding these programs as information becomes available.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Author Justin Csik is an associate in the Corporate & Securities Department at Klehr Harrison.