On March 27, President Trump signed into law the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, which might be a great help to our churches, Christian schools, and other 501(c)(3) organizations.
The ECFA is hosting a free webinar Tuesday, March 31, at 1 pm Eastern with tax experts who will break down how the CARES Act impact churches and nonprofits. The webinars are now full, but if you register with ECFA, they’ll send you a link to the recording 2-3 days after the webinar.
One part of the CARES Act is the Payroll Protection Program in the Keeping American Workers Paid and Employed Act; it provides for $349 million to be used to guarantee loans to small businesses and other entities that have 500 employees or less — including 501(c)(3) corporations. A large part of the loan could be forgiven at the end of 2020.
An organization that keeps its workforce stable (i.e. continues to pay the same number of employees as it did during its base period) and uses the funds to cover payroll and other eligible expenses, can have almost 100% of the loan forgiven.
There are several links below, but it seems the funds will be available on a first come, first served basis. Applications could be open as early as March 30.
According to the National Law Review (and a follow-up question answered by its author), the maximum amount of the loan that can be forgiven would equate to between eight to ten weeks of an organization’s employee costs.
For example, if a church had $1 million in employee expenses in the one-year period from March 1, 2019 to Feb. 29, 2020 (or April 2019 to March 2020 in this Litzler article), the forgivable portion of their loan could be approximately $208,000 (i.e., [$1,000,000 / 12 mos.) x 2.5].
According to information now available, if an organization retains the same number of employees at the end of 2020 as it had when it applied for the loan, then 94.7% of the loan will be forgiven, and 5.3% must be paid back. Interest will be charged, but will not exceed 4% over the ten-year period in which loan must be repaid.
It appears these funds will be available without any commitments from churches to the government, other than the financial details of the loan agreement.
Church sessions may want to consider now how they want to proceed, in order to be ready when applications open later today. Church leaders or financial staff might consider creating a spreadsheet soon, totaling all annual payroll costs per employee for the period March 2019 through February 2020. In addition to salaries, these costs may include, contributions to group health care benefits, paid sick/medical/family leave, insurance premiums, retirement contributions, etc., (and perhaps even housing allowance).
One article indicates nonprofits can include requests that the loan also cover the following: payments of interest on any mortgage obligation, rent (including rent under a lease agreement), utilities and interest on any other debt obligations that were incurred before the covered period. It seems the total for any particular employee is capped at $100,000.
It seems online applications will be allowed, and the loans will be administered through your local FDIC-insured bank; the bank will deal with the Small Business Administration. This program is different than the SBA’s Disaster Assistance Program, which excludes churches.
There is also a section of the CARES Act increasing the capacity for donors to give larger contributions with their tax benefits.
Organizations should realize the “forgiveness” aspect of the loan isn’t automatic. If 501(c)(3) lays off a certain number of employees after receiving the loan, and then needs to report an FTE number in December below the forgiveness threshold, they’d be on the hook to repay (albeit over ten years at about 4%). Churches should consider consulting with their financial advisors, bankers and attorneys.
Here are links that provide additional information:
How the COVID-19 Economic Stimulus Bill Affects Churches and Nonprofits
The FAQs: How the Stimulus Bill Affects Churches and Individuals
Churches urged to apply quickly for loans provided in $2T coronavirus relief bill
Details of CARES Act: The Financial Bridge that Churches, Schools & Nonprofits Need