CARES Act: Opportunities for Nonprofits

On March 27, 2020, President Trump signed into law the largest stimulus package in American history. The $2 trillion aid package called the Coronavirus Aid, Relief, and Economic Security (CARES) Act was written to provide relief to businesses and individuals in response to the outbreak of COVID-19. The Act provides comprehensive relief including new loan opportunities, tax incentives, allocates tax rebates to individuals, expands unemployment benefits, and suspends payments on Federal student loans. The comprehensive nature of the Act has left many confused and wondering how their situation will be impacted. Specifically, many Atlanta nonprofits have been seeking clarification on which programs and incentives apply to them. To help clients, prospects, and others, Wilson Lewis has provided a summary of opportunities below.

Paycheck Protection Program

The Paycheck Protection Program (PPP) provides businesses – including Sections 501(c)(3) and 501(c)(19) organizations – emergency loans for up to 2.5 times their average monthly payroll. To receive the benefit, a nonprofit must (1) have been in existence on February 15, 2020, and (2) have 500 or fewer employees. Payments on the two-year PPP loans are deferred for the first six months, but the 1% interest will begin accruing immediately.

In some cases, organizations can even have their PPP loans forgiven. To qualify for loan forgiveness, 75% of the PPP loan proceeds must be used to pay for payroll costs with the remaining used for:

• Interest on mortgage obligations incurred before February 15, 2020
• Rent payments on leases that began before February 15, 2020
• Utility payments for service agreements that began before February 15, 2020

Additionally, nonprofits must utilize their proceeds in the 8-week period following the loan. The Small Business Administration (SBA) is administering the loan applications, so organizations should pay close attention to any new guidance the SBA releases to ensure they can qualify for loan forgiveness. If any organization fails to qualify for forgiveness – or if the loan is only partially forgiven – they can pay them off early without incurring a penalty.

Employee Retention Tax Credit

If nonprofits choose not to take out PPP loans, they can instead apply for employee retention tax credits. This credit is up to 50% of any wages that are paid to keep workers employed when operations are shut down due to a Federal or state order. The credit is applied against payroll taxes, so nonprofits can capture the benefits almost immediately.

To receive the credit, wages must be paid during a time when operations have been suspended and when the organization’s wages have dipped to a certain threshold. Eligible wages are ones that occur in the first quarter with gross receipts that are less than half of in the same quarter of the prior year. Wages will cease to be eligible in the first subsequent quarter that gross receipts are more than 80% compared to the prior year.

Economic Injury Disaster Loan (EIDL)

Economic injury disaster loans (EIDLs) are available to for-profit businesses and private nonprofits to help with payroll and operating expenses. Since the statute does not define “private nonprofits,” more organizations will likely be eligible for EIDLs than PPP loans.

The EIDL program was designed to give organizations a 2.75% interest loan of up to $2 million at a term no longer than 30 years. These loans can be used to pay for almost any expense the borrower is unable to cover due to the pandemic. The loans could be especially helpful for nonprofits in need of a quick influx of cash. While the approval process may take weeks, the EIDL program provides $10,000 advances to applicants within 3 days of application submission.

Contact Us

With more than 16 million American workers now unemployed, nonprofit organizations are experienced significant declines in donations and program fees. This against the backdrop that federal funding may not arrive for several weeks. Many organizations are focused on maintaining regular communication with their largest supporters while focused on expense management. If you have question about the information outlined above or need assistance with another COVID-19 issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us.