With the recent Coronavirus Aid, Relief and Economic Security (“CARES”) Act, the federal government has provided much needed stimulus into the American economy. This legislation was geared towards businesses and employers of all stripes, including non-profit organizations.
These loans have a limited financial backing so time is of the essence in getting in your application. In order to obtain a Paycheck Protection Program loan, please contact your local SBA affiliated lender.
Indeed, the newly instituted Paycheck Protection Program, which offers loans worth up to $10 Million for both 501(c)(3) and 501(c)(19) tax-exempt organizations with up to 500 employees. These low interest Small Business Administration (“SBA”) loans are being made to cover up to two (2) months of payroll costs and may be entirely forgiven if certain conditions are met and the non-profit maintains existing staffing levels for eight weeks after getting the loan. The interest rate on such loans may not exceed 4% and the maximum loan term is 10 years. The loans do not need to be repaid for at least six months, but repayment may be deferred up to one year based on guidance to be issued by the SBA within 30 days after the date of enactment of the Act. The loans are nonrecourse, except to the extent that the proceeds are used for unpermitted purposes.
Loans under the Paycheck Protection Program have certain strings attached, as loan recipients may only use the proceeds for:
- maintaining payroll costs (including employer group health care benefits),
- interest on mortgage obligations,
- utilities, and
- interest of debt incurred prior to February 15, 2020.
These loans have a limited financial backing of $349 Billion from the government, so time is of the essence in getting in your application. In order to obtain a Paycheck Protection Program loan, please contact your local SBA affiliated lender. All current SBA lenders are eligible to issue Program loans. A list of the 100 most active SBA lenders is included in the link here: https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders.
If your private non-profit does not have any paid employees or significant payroll costs, the SBA is offering a different loan program which may prove a better fit. In addition to the Paycheck Protection Program loans, the SBA is offering Economic Injury Disaster Loans (“EIDL”). These loans are worth up to $2 Million, with a 30 year maturity date and an interest rate set at 2.75% for non-profits.
In addition, under the EIDL program, applicants are eligible for an immediate grant worth $10,000. This grant money may be used solely for
- providing sick leave to employees unable to work due to the direct effects of COVID-19;
- maintaining payroll to retain employees during business disruptions or substantial slowdowns;
- meeting increased costs to obtain materials due to interrupted supply chains;
- making rent or mortgage payments;
- and repaying other obligations that cannot be met.
There are other ancillary benefits to the EIDL program, including deferral of payments of principal and interest for up to four years and certain payroll tax credits. Eligible nonprofits may apply for an EIDL at a local SBA district office or online at https://disasterloan.sba.gov/ela/.
Tamkin & Hochberg’s attorneys continue to work with our clients to review their specific needs and assisting with the SBA EIDL loans, the new Paycheck Protection Program loans, and other benefits that have been made available under the CARES Act. Feel free to contact us to discuss any of your questions or concerns.