How The CARES ACT Can Help Your Nonprofit
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed by Congress and signed into law on Friday, March 27, offers a range of benefits to nonprofit organizations:
Paycheck Protection Program
- About: Emergency loan program to meet payroll and operational costs (mortgage, rent, utilities, debt obligations), with the possibility of securing full or partial loan forgiveness if certain conditions are met.
- Eligibility: Public or private nonprofit organizations - registered as 501(c)(3)s with fewer than 500 employees. The nonprofit must have been functioning on February 15. Nonprofits receiving Medicaid support are not eligible.
- Loan size: Lesser of $10 million OR 2.5 times the average monthly payroll + operational costs for the 1-year period prior to the loan application date.
- Loan terms: 4% interest rate, with the first 6 months of loan repayment being deferred. Loan agreement up to a maximum of 10 years.
- Processed by: SBA approved lenders.
- Personal Guarantee/Collateral: not required.
- Certification: the applicant must issue a good-faith certification that the loan is required to meet the current economic situation, and that it will be used to retain the existing workforce and operations. In addition, the nonprofit must not be receiving duplicate funds for the same expense.
- Loan use: Payroll support, including paid sick, medical or family leave, and costs related to continuation of group health insurance during the period of leave, employee salaries, mortgage payments, rent (including rent under a lease agreement), debt obligations that were in place before February 15 (see below).
- Covered period: February 15 to June 30, 2020.
- Loan forgiveness: The costs incurred on payroll costs (excluding costs for any pro-rata compensation that exceeds $100,000 annually), mortage interest, rent, and utilities for the eight-week period following the start of the loan, are eligible for forgiveness. The loan forgiveness component is favourable to nonprofits which maintain the same level of employees as compared to the “pre-crisis” period. The loan forgiveness amount will be reduced in case of a reduced headcount.
- How to Apply: You will need to apply to an SBA-approved lender. Please get in touch with your Bank to verify if they are participating in the Paycheck Protection Programme and when the application window would open up. Early indications suggest that Banks are prioritizing existing customers, so it's best to first check with your bank:
JP Morgan Chase
Bank of America
- Disclaimer: a separate application must be submitted for loan forgiveness and the lender will provide the decision within 60 days. There is no guarantee that the loan forgiveness will be approved.
Economic Injury Disaster Loans
- About: The SBA’s existing Economic Injury Disaster Loan (EDIL) program has been expanded to include nonprofit organizations, along with more flexible credit standards, and an emergency grant of $10,000. The loan can be used to cover payroll and operational costs that were disrupted by the Coronavirus pandemic.
- Eligibility: Nonprofit organizations with fewer than 500 employees. The organization must be tax-exempt under Sections 501(c), (d), or (e) of the Internal Revenue Code.
- Loan size: Up to $2 million with an advance (grant) of $10,000 that is issued within 3 days of loan approval.
- Loan terms: 2.75% interest rate, loan period is yet to be specified.
- Processed by: Small Business Administration.
- Certification: Self-certification by applicant.
- Loan use: The $10,000 advance as well as the full loan can be used to cover payroll, paid sick leave, utilities, mortgage, debt service.
- Covered period: January 31 to December 31, 2020.
- Collateral: No personal guarantee required for loans up to $200,000.
- Loan forgiveness: The $10,000 advance is treated as a grant (and is forgiven), regardless of whether the EDIL loan is approved.
- How to apply: Click here
Charitable Giving Incentives
- The CARES Act has opened up tax incentives for donors of 501(c)(3) organizations.
Section 2204 has established a universal, non-itemized deduction for total charitable contributions of up to $300 in 2020. This means that individual donors can claim a $300 tax deduction in their 2020 tax return even if they don’t itemize their contributions.
- Section 2205 has raised the annual cap on charitable contributions (by those who itemize) from 60% of their gross income to 100%. Organizations with wealthy donors in their network could stand to benefit from this provision. The annual limit on corporate donations has been raised from 10% to 25%.
Employee Retention Payroll Tax Credit
Provides a refundable payroll tax credit of up to $5,000 per employee based on meeting the following criteria:
- -The organization must have been in operation at the start of 2020
- -It must have closed partially or fully due to the Coronavirus pandemic
- -Its first-quarter revenue for 2020 must have dropped by 50% when compared to the first quarter of 2019.
Note: Organizations that receive support via Paycheck Protection Loans are ineligible to apply for this tax credit.
Delayed Payment of Payroll Tax
Provides room for employers to delay paying the employer’s component of payroll taxes in 2020. This can be settled in two equal installments at the end of 2021 and 2022.
Please take the support of your finance team or hire an accounting firm to make a solid application, and ensure that you have understood all the provisions comprehensively. Do pay particular attention to possible implications on your tax exempt status in case you apply for any of these facilities. Let us know if you are in search of a reputed accounting firm, and we’ll put you in touch.
Other Resources for Nonprofits in California
- -The J.Paul Getty Trust, in partnership with the California Community Foundation has launched a $10 million relief fund to support museums and visual arts organizations in Los Angeles County.
- -The Northern California Grantmakers’ Arts Loans Fund is providing emergency low-interest loans of up to $50,000 for arts and culture nonprofits and fiscally sponsored programs in 11 counties in the Bay Area.
- -The San Diego Foundation has launched the ‘San Diego COVID-19 Community Response Fund’, which makes emergency grants and interest-free loans to local nonprofits working with vulnerable and disadvantaged communities.
Written by Emily Wilkinson & Ashok Ganguly of Moonlight Consulting.