What funding is available and how do I ensure PPP monies will be forgiven?

Many churches, nonprofits, and charities are facing unprecedented financial challenges. Religious schools and charities are seeing drastic changes in funding. The Small Business Administration (SBA) has provided several funding opportunities for churches and ministries during this time. Some states are also providing state economic disaster funds. These funds are aimed at ensuring the stabilization of small businesses, which include churches and ministries throughout the country.

At this time, many churches have received the ten-thousand-dollar grant from the Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) funding. The information below addresses some of the concerns about the PPP monies as churches and ministries have begun to receive those funds.

Select one of the programs below to learn more:

Here are some answers to specific questions below:

CARES Act: Payroll Protection Program (PPP)

The CARES act provides significant funding to small businesses across the country. Now that the law has gone into effect, we want to provide some additional information for your church, ministry, or nonprofit.

Download the Payroll Protection Program Details Sheet

When can I apply?

  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other specific expenses through existing SBA lenders.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Where can I apply?  You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender to determine if it is participating. Visit www.sba.gov for a list of SBA lenders.

Who can apply?  All businesses—including nonprofits, veterans organizations, tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors—with 500 or fewer employees—may apply. Businesses in certain industries may have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional details).

What can I use this loan for? You should use the proceeds from this loan for:

  • Payroll costs, including benefits
  • Interest on mortgage obligations incurred before February 15, 2020
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities for which service began before February 15, 2020

What counts as payroll costs? Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee)
  • Employee benefits, including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provision of group healthcare benefits, including insurance premiums; and payment of any retirement benefits
  • State and local taxes assessed on compensation
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

How large can my loan be? The loan can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. The amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How much of my loan will be forgiven? You will owe money when your loan is due if you use the loan for anything other than payroll costs, mortgage interest, rent, and utilities payments over the eight weeks after receiving the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

How can I request loan forgiveness?  You can submit a request to the lender that is servicing the loan. The request must include documents that verify the number of full-time-equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utilities payments. The lender must make a decision on forgiveness within sixty days.

What is my interest rate? 1% fixed rate.

When do I need to start paying interest on my loan? All payments are deferred for six months; however, interest will continue to accrue over this period.

When is my loan due? In two years.

Can I pay my loan earlier than two years? Yes. There are no prepayment penalties or fees.

Do I need to pledge any collateral for these loans? No. No collateral is required.

Do I need to personally guarantee this loan? No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***

SBA PPP Information: https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.

PPP Application Form: https://www.sba.gov/sites/default/files/2020-03/Borrower%20Paycheck%20Protection%20Program%20Application_0.pdf

SBA Disaster Funding: Economic Injury Disaster Loans (EID)

SBA economic injury disaster loans (EID) are also available. They are somewhat different from PPP loans. The SBA’s EID program provides small businesses with working capital loans of up to $2 million to provide vital economic relief to help them overcome the temporary loss of revenue they are experiencing. Funds will be made available within three days of a successful application, and the loan advance will not have to be repaid.

Link to apply: covid19relief.sba.gov

Questions & Answers

Will the PPP monies be forgiven?

Many ministries and churches have had concerns about the forgiveness actually occurring. If you follow the criteria for forgiveness and have good records, the forgiveness will occur. There is not an attempt by the SBA or the banks to hold onto these loans. They want to see these loans forgiven. The SBA has clarified as recently as May 13, 2020, that small businesses can be confident regarding forgiveness.

How does the new rule concerning need apply to us?

The SBA has been proactively trying to address the situation of many organizations taking monies that they did not need because they were tied to larger businesses or funding. Churches and ministries demonstrating need is not their concern. To solidify this, the SBA released FAQ 46.

The SBA, in consultation with the Treasury Department, has just released a new FAQ #46 that appears to address some of these concerns by creating a safe harbor for organizations receiving PPP funds under $2 million: “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”

This clarifies the question for ministries and churches we have advised regarding taking PPP funds. They are not the target of concern.

How will the PPP monies be forgiven?

Payout Period: The payout period begins on the date the loan is funded. From the date the loan is funded, you have eight weeks to spend the money on payroll. This means that when you receive the money, the following eight weeks of payroll from the deposit date will count toward the 75% of the loan forgiven for payroll expenses.

Audit Trail: When you begin utilizing PPP money, you will want to make sure you have a solid audit trail to demonstrate how the money is being used. This audit trail needs to include payroll expenses and non-payroll expenses. You need to keep clear payroll accounting to ensure you are able to prove the payroll amount that was paid during the eight-week period.

Non-Payroll Expenses: You can use up to 25% of PPP money on non-payroll expenses. This includes but is not limited to rent, mortgage, debt-service payments, utilities, etc. This amount has to be limited to no more than 25% of the total PPP amount.

Hire Back Employees: If you have furloughed employees, you have until June 30, 2020, to hire them back. You do not need to bring all your employees back during the eight-week period following the repayment of the loan, but there are penalties for not having the same number of full-time equivalents by June 30.

Restoring Pay Cuts: You have until June 30 to restore pay cuts that have been in place due to reduced hours or reduced work during the COVID-19 crisis. Make sure it is financially sensible for your organization to do this.

FICA Deferrals:  Additional provisions in the CARES Act allow you to defer FICA for a period of time. Employers who do not receive forgiveness of a PPP loan may defer paying their 2020 employer FICA tax (the 6.2% tax on the first $137,700 of an employee’s earnings). 50% of the deferred tax is due on December 31, 2021 and 2022. Last week the IRS announced that PPP borrowers also qualify for deferral through the date their loan is approved for forgiveness. Any FICA tax incurred up through that date qualifies for deferral through 2021 and 2022, but tax incurred after that date will have to be deposited without the benefit of deferral.

As your organization considers how best to handle the forgiveness portion, realize there are many ways to handle the “math problem” that is presented by the forgiveness plan. Take a look at the following example for a simple explanation:

$100,000 in money loaned
$75,000 goes toward payroll expenses
$25,000 goes toward non-payroll expenses

According to the above example, if you received your loan on April 20, 2020, you have until June 15, 2020, to pay $75,000 toward payroll in order for your loan to be forgiven. Your records should show that amount of money was spent on payroll. You will also have April, May, and June expenses that could count toward the non-payroll expenses portion of the loan. This should total $25,000 to qualify for forgiveness. If you have furloughed employees or laid off employees, you have until June 30, 2020, to hire them back or bring your full-time employee count back to the same levels you had prior. This should only be done if it makes financial sense for your organization.

Is there anything specific we need to do for forgiveness?

When you receive the PPP monies, you need to follow careful guidelines so that all of your accounting is accurate. Additionally, you need to make sure you do the math ahead of time to understand how the expenses and payroll will work with the amount of money you received. Once you have done your own projection, keep good records of those expenses.

  • Keep track of the eight weeks of payroll accurately
  • Track expenses for the 25%
  • Keep receipts and invoices paid and copies of checks
  • Keep the pay stubs for those weeks
  • Put together a packet with an audit of the monies

This packet will then be submitted to your bank. They will confirm the records, and the bank will submit for forgiveness.

Should I take the EIDL monies?

If your organization is still in need of funding and the interest rate appeals to you, the EIDL program may make sense. However, if you have received PPP money, the EIDL monies will not be forgivable. You need to make sure the need and the payback makes sense for your organization.

NCLL attorneys are offering coaching sessions to help you make the best decisions for your ministry in regard to utilizing PPP money. Contact our office today at 888-233-6255 or by email at info@ncll.org to set up your coaching session.

Other Funding and Information Available

Read the full CARES Act: https://www.congress.gov/bill/116th-congress/house-bill/748/text

SBA Web Site Information: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

As your church or ministry determines how best to respond, remember there is no one-size-fits-all solution. If you are still trying to determine how best to navigate this complicated time for your church or ministry, please contact our office, and one of our team members will gladly assist you in answering your questions. Contact our office by calling 888-233-6255 or emailing info@ncll.org.