The following information has been adapted from the Small Business Administration’s (SBA) Paycheck Protection Program Borrower Information Fact Sheet to provide information tailored for nonprofits.
This document is for informational purposes only, is not intended as legal advice, and does not substitute for consulting with a lawyer about specific facts and circumstances. This document does not constitute a solicitation, and your use of this document does not create an attorney-client relationship between you, the Pro Bono Partnership, and/or Lowenstein Sandler.
The Paycheck Protection Program closed on August 8. The SBA is no longer accepting new applications from participating lenders. The following FAQs are for informational purposes only and to assist borrowers who obtained PPP loans with their loan forgiveness applications.
Key Forgiveness Update: In October, the SBA released a new 1-page streamlined forgiveness application for Paycheck Protection Program loans of $50,000 or less. Borrowers who use this application will not be penalized for reductions in employees or wages.
What is the Paycheck Protection Program?
The Paycheck Protection Program (“PPP”) is a loan program created by the federal CARES Act, which authorized $349 billion in forgivable loans to nonprofits, among other business entities, to pay their employees and cover certain other core expenses during the COVID-19 crisis.
The first wave of PPP funding was exhausted on April 16, 2020. The government approved $310 billion of new funding for the PPP on April 24, 2020. On April 27, 2020, the SBA resumed accepting PPP applications from participating lenders. About one fifth of the second round of PPP funding was earmarked for smaller banks, smaller credit unions, and community financial institutions that provide financing to underserved and economically disadvantaged communities.
The CARES Act was substantially amended on June 5, 2020, with the enactment of the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”). The Flexibility Act updated many aspects of the PPP. As suggested by its name, the law was intended to give PPP borrowers more flexibility in when and how they spend their PPP funds. Flexibility Act updates are included below.
On July 4, 2020, the Paycheck Protection Program Extension Act (the “Extension Act”) was enacted. The Extension Act extended the PPP application deadline from June 30 to August 8, 2020.
The PPP closed on August 8, 2020, with over $130 billion of unused funds remaining in the program. New applications for PPP loans will not be accepted unless Congress acts to extend the program. Borrowers who applied for and received a PPP loan can apply for forgiveness any time up to the maturity date of the loan. However, a borrower should apply for forgiveness within 10 months from the end of their covered loan period because if they wait longer, they will need to begin making payments on the loan to their PPP lender.
How large can my loan be?
Loans can be for up to 2.5 times your average monthly payroll costs from the last year (either the previous 12 months or calendar year 2019). That amount is subject to a $10 million cap. Payroll costs are capped at $100,000 per year for each employee (note: an employee’s cash compensation above $100,000 is not counted as part of the nonprofit’s payroll costs when calculating the amount of the loan, but the full cost of that employee’s benefits is counted).
Payroll costs are calculated on a gross basis without regard to federal taxes imposed or withheld. In other words, payroll cost is not increased by the employer’s share of payroll tax or reduced by taxes imposed on an employee and required to be withheld by the employer.
Flexibility Act Update: In general, the loan amounts will be forgiven so long as:
Note: A new SBA Interim Final Rule exempts PPP loans of $50,000 or less from loan forgiveness reductions based on workforce and wage reductions. Borrowers with loans of $50,000 or less should complete the streamlined 1-page PPP Loan Forgiveness Application Form 3508S.
(Before the enactment of the Flexibility Act, to qualify for full forgiveness borrowers had to spend the funds over the 8-week period after the loan was made. The Flexibility Act gives borrowers the option to spend the funds over a longer period. Borrowers whose PPP loan was approved prior to the enactment of the Flexibility Act may keep the original 8-week period if they choose. Most businesses will find the 24-week period preferable, but some may wish to retain the original 8-week period so as to submit the forgiveness application as soon possible.)
Originally, the SBA indicated that at least 75% of the forgiven amount had to be used for payroll costs. The Flexibility Act reduces this percentage: PPP borrowers are now eligible for loan forgiveness so long as they use at least 60 percent of loan proceeds for payroll expenses, with no more than 40 percent of loan proceeds going to eligible non-payroll expenses.
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, interest on a mortgage, rent, and utility payments during the covered loan period (which runs for 24 weeks after receiving the loan or until December 31, 2020, whichever is earlier).
For loans greater than $50,000, you will also owe money if you do not maintain your staff and payroll.
(As noted above, the forgiveness reduction penalty for reductions in workforce or wages does not apply to loans of $50,000 or less.)
For borrowers of loans exceeding $50,000, some reductions in workforce will not count against you for the purpose of loan forgiveness. Loan forgiveness will not be impacted if:
What if my nonprofit uses government funding to cover some of its payroll costs? How should I treat the portion of my payroll already covered by other government grants?
We recommend the following steps.
So long as the nonprofit itself pays the staff member’s compensation (meaning that the government does not pay the staff member directly), the whole of that compensation should be included when calculating average monthly payroll costs in the first part of the PPP application.
When calculating the amount of loan forgiveness to claim, however, some of the nonprofit’s payroll costs may be excluded. If the nonprofit can defer using its other government grants to cover payroll during the 8 weeks after it receives a PPP loan, it should do so. In that case, the nonprofit can claim all of its otherwise qualifying payroll costs (or that portion for which other government funding can be deferred) as part of its loan-forgiveness amount.
If the nonprofit cannot defer using its other government grants to cover payroll, then it should exclude the portion of its average monthly payroll costs that are covered by those other grants from the amount it claims for loan forgiveness.
The Federal Office of Management and Budget has issued guidance stating that “payroll costs paid with the PPP loans or any other Federal CARES Act programs must not be also charged to current Federal awards as it would result in the Federal government paying for the same expenditures twice.” Additional guidance to help nonprofits navigate the interplay of PPP loans and other government funding is available on the Fiscal Management Associates website.
Which nonprofits can apply?
Nonprofits are eligible to apply for a PPP loan if:
Be aware that the SBA might consider two or more nonprofits under common control to be “affiliated.” An affiliation of multiple organizations could exceed the 500-employee limit. This determination is complex and may require legal counsel.
What if my nonprofit client is a religious organization? Can it qualify?
Yes. The government considers religious organizations to be eligible for loans under the Paycheck Protection Program.
What can I use these loans for?
You should use the proceeds from these loans on:
When can I apply?
Applications will be accepted through August 8, 2020, or until the federal funds for this program are exhausted, whichever is earlier. If you are interested, apply as soon as you can.
Where can I apply?
Check the website of your existing bank or lending institution to determine if it is accepting applications. Many participating lenders are only accepting applications from existing customers. Most lenders are accepting applications through their online portals. Earlier in the PPP process, some borrowers reported that national banks failed to process their applications. To increase the likelihood that your loan application will be processed, you may wish to apply with a community bank or FinTech company such as PayPal. A full list of lenders is available at www.sba.gov. Contact a lender as soon as possible to begin the application process.
What do I need to apply?
You will need to complete the Paycheck Protection Program loan application and submit the application with the supporting documentation to an approved lender. Click here for the SBA’s model application (which individual lenders may modify).
What supporting documentation will I need to include with my application?
Each lender’s requirements may vary. You should be prepared to provide your lender with documents that verify the number of full-time equivalent employees and pay rates, as well as eligible mortgage, lease, and utility obligations. Consider compiling the following:
Do I need to look for other funds first, before applying to this program?
No. The SBA waived its usual requirement that a borrower first try to obtain some or all of the loan funds from other sources.
How can I request loan forgiveness?
You will need to submit an application for forgiveness directly to the lender that provided your PPP loan.
Borrowers of loans of $50,000 or less should submit to their lender the streamlined 1-page PPP Loan Forgiveness Application Form 3508S.
Borrowers of loans exceeding $50,000 will submit either the 7-page loan forgiveness application that incorporates changes to PPP loan forgiveness requirements made by the Flexibility Act, or a simplified 3-page “EZ” loan forgiveness application. The “EZ” loan forgiveness application may be submitted by borrowers who can satisfy any of the following requirements:
What are the general PPP loan terms:
When do I have to pay the loan back?
Flexibility Act Update: You now will not have to start making payments on the loan until after you submit your forgiveness application and the SBA pays the forgiveness amount to the lender.
For PPP loans made before the enactment of the Flexibility Act, the full amount will be due within 2 years of when you received the money. If you receive your PPP loan after the enactment of the Flexibility Act, you will have 5 years to repay the loan. Existing PPP loans can be extended up to 5 years if the lender and borrower mutually agree. If you want to pay earlier, there are no penalties for pre-payment.
What do I need to certify?
As part of your application, you need to certify in good faith that:
Can I make the certifications above if my nonprofit has a large operating reserve?
This is a business decision that depends on the facts and circumstances of your nonprofit and should be supported by careful and documented deliberation of your board members. SBA guidance issued on April 24 states that, in making the above certifications, organizations should take into account their current business activity and their ability to access other funds sufficient to support their ongoing business operations in a manner that is not significantly detrimental to their business.
Will the details of my nonprofit’s PPP loan be made public?
On November 5, a federal judge ordered the SBA to provide the names, addresses, and precise loan amounts of all individuals and entities that obtained PPP and EIDL loans by November 19, 2020. As of the date of this writing, it is unclear if the SBA will appeal the November 5, 2020 ruling. In July 2020, the SBA released detailed information for PPP loans above $150,000.