By Joseph Cutler, Will Gillis, Anna Joy, and Michelle Han
Smaller nonprofit organizations may find themselves struggling to maintain their mission under the current coronavirus (COVID-19) crisis, let alone keep abreast of the resources available to them under federal relief programs. While details about eligibility, qualification, and how to proceed may be overwhelming, it is a relief to know there are several programs specifically tailored to assist smaller organizations with their biggest concerns—including payroll, rent, and utilities. This post summarizes the programs offered through the Small Business Administration for which a nonprofit organization may qualify.
We emphasize that funds are limited, and applications are reviewed on a rolling, first-come-first-served basis. Accordingly, nonprofits should act expeditiously to determine eligibility and contact their banks to submit the applications necessary to secure a place for relief funding.
To assist your general understanding of the various relief programs, we offer the following summaries of the programs that are currently available:
- Paycheck Protection Program (PPP): A loan for 2.5x a nonprofit’s average monthly payroll costs to be paid back over 2 years at 1% interest. The most significant benefit is, provided that (i) the loan is used for permitted purposes, (ii) the organization does not terminate employees or reduce their pay beyond 25% during the 8-week period after the loan is made, and (iii) at least 75% of the loan is used for payroll costs, up to the full amount of the loan will be forgiven. In addition, these loans have expedited, short-form underwriting procedures, substantially facilitating the funding process. Applicants must apply for the PPP directly with their SBA certified lenders.
- Economic Injury Disaster Loan (EIDL): A loan for up to $2 million to be used for working capital, debt, payroll, and other obligations, repaid over a term of up to 30 years at a maximum 3.75% interest. EIDLs are not forgivable other than the $10,000 emergency grant, discussed next. These loans are underwritten by the SBA, and an organization’s eligibility may be limited by its creditworthiness and ability to meet possible collateral and guaranty requirements, but EIDLs represent a way to obtain additional funds for costs and expenses that are not covered by the PPP, and are offered at a favorable rate with repayment made over an extended period. Applicants must apply for EIDLs directly with the SBA.
- Economic Injury Disaster Loan Grant (EIDL Grant): A forgivable emergency grant for up to $10,000, to be distributed within 3 days of application.
- Each loan program has minimal requirements for eligibility. For PPP loans, 501(c)(3) nonprofits and 501(c)(19) veterans’ organizations with 500 or fewer employees will generally qualify. For EIDLs, private nonprofits (which include 501(c), 501(d), and 501(e) tax-exempt organizations) and nonprofits under state law will generally qualify.
We note that if a person or other organization has the power to control the nonprofit’s operations (including the ability to prevent the nonprofit from taking certain actions), the nonprofit may not be eligible if that person or organization controls other businesses or nonprofits that collectively with your nonprofit have more than 500 employees. If this applies to your nonprofit, please consult a lawyer before applying for any of the federal loans.
Faith-based organizations qualify for relief. If otherwise eligible, faith-based organizations qualify for COVID-19 relief programs regardless of whether they provide secular social services. Receiving loan funds may trigger certain antidiscrimination requirements, but the government has indicated that these requirements apply to goods, services, and accommodations offered to the public (e.g., a restaurant or thrift store) and the intention is not to limit most other activities of faith-based organizations.
There is no limitation on multiple applications. Nonprofits that qualify may receive funds through all three programs. Additionally, a nonprofit may apply for and receive the EIDL Grant without being approved for an EIDL itself. Nonprofits will not have to repay the funds they receive from an EIDL Grant, even if their EIDL application is denied.
Nonprofits may wish to consider applying for the maximum PPP Loan amount for which you qualify. PPP Loans are being granted on a first come, first served basis, and to maximize the number of businesses and nonprofits that receive funds, the SBA has determined that businesses and nonprofits may apply only once before the June 30 deadline.
- The Application period is severely limited: The SBA-certified lenders began accepting PPP applications from businesses on April 3. The funds are expected to run out quickly.
- Visit the SBA website to fill out an application for an EIDL Loan and EIDL Grant, and contact your bank about applying for a loan through the PPP. If your current bank is no longer accepting PPP applications or your nonprofit does not meet the bank’s minimum requirements (e.g., having a business credit card), look to local community banks. Many local community banks are SBA-certified lenders and are accepting PPP applications, in most cases, without any relationship requirements. Click here for a list of SBA-certified lenders eligible to participate in the PPP.
Eligibility requirements for all the programs we described, the application process, and the terms of these programs are all rapidly evolving, and this summary is not a comprehensive description of all necessary details and may not be up-to-date as programs evolve. It is essential that nonprofits consult legal counsel for the latest information, relevant details, and legal advice regarding specific circumstances. Please note that there may also be state-level programs available to help you as well as programs aimed at nonprofits with 500-10,000 employees that we have not described. A more detailed description of each of the programs we have described above can be found here. Please also visit Perkins Coie’s COVID-19 Resource Page for information and materials on a wide variety of topics, including employment, tax, contracts, real estate, and immigration.
YOU ARE NOT ALONE. We are partnering with other community resources to field and answer questions from smaller nonprofits and may be able to answer questions you have about these programs or help connect you to organizations that are mobilizing to assist. We invite you to email us at COVID19ProBono@perkinscoie.com.
Disclaimer: This document is for informational purposes only and not for the purpose of providing legal advice. You should not rely on this for legal advice and should contact your/an attorney to obtain advice with respect to any particular issue or problem since this information is general and not specific to any specific factual situation. Use of and access to this document does not create an attorney-client relationship between Perkins Coie and the reader.