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FAQs from NFPs regarding the CARES ACT

April 07, 2020

Do you have questions on how the CARES Act and paycheck protection program will impact your organization? Below are some FAQs.

The last several weeks have gone by in a blur and we have been answering questions and advising our nonprofit clients on various funding opportunities related to the Paycheck Protection Program loan. We have accumulated the most common questions and the answers below.

How do I know if I am eligible for the Paycheck Protection Program (PPP) loan?

A nonprofit organization generally may obtain a PPP loan if it:

  • Was in existence on Feb. 15, 2020.
  • Is either (a) exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code or (b) a war veterans’ organization exempt under section 501(c)(19) of the code.
  • Has 500 or fewer full and/or part-time employees (subject to the SBA’s affiliation rules).
  • Provides a good faith certification that the loan is necessary due to economic conditions brought about because of COVID-19 and that the borrower will use the 75% of the loan funds to retain workers and maintain payroll.
  • Aggregate payroll costs for last 12-months;
  • Subtract pay from each employee in excess of $100,000;
  • Divide step 2 total by 12 months to get the monthly average;
  • Multiply step 3 total by 2.5
  • Payroll Costs (notes above, including limit on wages/salaries above $100k on an annualized basis)
  • Interest payments on mortgages in existence prior to February 15, 2020 (no principal payments)
  • Rent payments on leases in existence prior to February 15, 2020
  • Utility (electric, gas, water, transportation, telephone and internet) payments where service was in place prior to February 15, 2020
  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Are small business concerns (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) required to have 500 or fewer employees to be eligible borrowers in the PPP?

No. Small business concerns can be eligible borrowers even if they have more than 500 employees, A business can qualify if it meets the SBA employee-based or revenue-a business can qualify for the Paycheck Protection Program as a small business concern if it met both tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.

How much can I apply for?

Eligible nonprofit organizations are eligible for the lesser of $10 million or 2.5x average monthly payroll costs based upon the trailing 12 months Payroll Costs.

What is included in Payroll Costs?

The rule lays out a five-step process for calculating payroll costs for purposes of PPP loans:

What are the PPP loan terms?

The loan term is two years, with an interest rate of 1% and payments can be deferred for 6 months.

Will Paycheck Protection Program Loans Be Subject to Uniform Guidance for Nonprofit Organizations?

The Paycheck Protection Loans (PPL) provides 100% federally guaranteed loans to covered entities who meet certain criteria. A Uniform Guidance audit is required for all non-federal entities that expend Federal awards of at least $750,000. Federal awards include both cash and non-cash awards which include loans and loan guarantees.

If a nonprofit organization receives a PPL it needs to consider whether these funds will require the organization to have a Uniform Guidance audit, or increase the scope of the Uniform Guidance audit if the organization already has one conducted.

The Office of Management and Budget (OMB) has not issued any specific guidance on the CARES Act funding yet, and the new funding is not anticipated to be included in the initial release of the 2020 Compliance Supplement. The OMB may issue an addendum later to provide audit requirements and guidance. KLR has inquired of the SBA administration and they are not able to provide a definitive answer at this time.

Although there is no definitive guidance, the AICPA’s Governmental Audit Quality Center has advised that recipients should assume that the PPL will be considered Federal assistance under Uniform Guidance. This treatment would be consistent with the American Recovery and Reinvestment Act of 2008 (ARRA), the last major stimulus legislation.

How much of my loan will be forgiven?

Loan funds used for Certain Purposes (subject to limitations, see below) during an 8-week period are eligible for forgiveness as long as 75% of the loan proceeds are used for payroll costs. Any portion of the loan not forgiven by December 31, 2020 will remain outstanding under the loan terms above.

“Certain Purposes” are:

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.

You will also owe money if you do not maintain your staff and payroll.

How does SBA determine affiliation?

Entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists. SBA has a specific set of rules that detail when entities or person is determine to be an affiliate. 13 C.F.R. § 121.103(a)(6).

Accordingly, the SBA’s affiliation rules, including those set forth in 13 CFR part 121, do not apply to the relationship of any church, convention or association of churches, or other faithbased organization or entity to any other person, group, organization, or entity that is based on a sincere religious teaching or belief or otherwise constitutes a part of the exercise of religion.

As additional information becomes available we will be providing updates and guidance through our mission matters blogs and newsletters. Visit our Coronavirus Resource Center for the latest.

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