The $2 trillion Coronavirus Aid, Relief and Economic Recovery (CARES) Act includes $349 billion in forgivable loans for nonprofits and small businesses. The main purpose is to help organizations keep their employees on the payroll between now and the end of June 2020. Hence, the name of the program: Paycheck Protection Loans (PPL).
PPL is a program of the Small Business Administration (SBA) and will be implemented by banks around the country that are already approved as SBA lenders. The money will be distributed on a first come, first served basis. Below is information about how the loans work and some tips and concrete steps you can take right now to be ready to apply when the window opens.
How the Loans Work
- Nonprofits organized as 501(c)(3)s and small businesses with fewer than 500 employees are eligible to apply through an SBA approved lender in their community. Sole proprietors are eligible as well.
- Awarded on a first come, first served basis beginning sometime this week or next.
- Funds can be used for salaries and other payroll expenses, rent and utilities, mortgage interest and interest on other debt secured before February 15, 2020.
- Loan amounts are 2.5 times monthly payroll expense for full-time employees up to $10 million. Salaries capped at $100,000 per employee in the calculation.
- 4% annual percentage rate; no payments or interest for 6-12 months, then converts to 10 year terms. 100% government guaranteed, no collateral or security required.
- Loan can be forgiven if recipient keeps all employees on payroll through June 30, 2020 and uses the funds for allowable expenses. This in effect converts the loan to a general operating grant.
How to Apply
As of today (March 30), banks are not yet set up to receive applications, but they will be soon. Here are some things to do to prepare to apply as soon as the process starts, since PPL is first come, first served and estimates suggest that 4 million entities are eligible.
- Contact your bank today to find out if they are an approved SBA lender. If not, this list organized by state from The Jewish Federation of North America or the SBA Lender Match tool will help you find one in your area. No need to shop around; the program will be the same at every bank.
- Calculate your average total monthly payroll expense for full time employees over the last 12 months. Exclude individual salary amounts above the $100,000 cap, payroll and income taxes, salaries of employees outside the U.S., and contractors. Your nonprofit or business is eligible for 2.5 times this amount, up to $10 million.
- Gather the financial information and other documents you will likely be required to submit with your application. Check out this list of information you will probably need.
- If you are a nonprofit, check in with your board now to secure their approval if it’s required to apply for such a loan.
- Stay in touch with your bank about when the application window will open and make a plan for completing and submitting your information quickly.
- Continue any efforts you have in place to manage and conserve cash. Early indications are that it could take a few weeks to receive funds after loans are approved.
The CARES Act was just passed by Congress and signed by the President on March 27, so the SBA is still standing up the program and additional guidance is forthcoming. The decentralized infrastructure of SBA-approved lenders will help the process move quickly once the application window opens. In the meantime, take steps to ensure your organization is ready to apply. The Paycheck Protection Loans are a great way to ensure nonprofits and small businesses can keep millions of their employees on the payroll during this time of economic distress caused by the coronavirus pandemic.
Special thanks to the team at the Charles and Lynn Schusterman Family Foundation for their leadership in analyzing and synthesizing emerging information about the PPL program and its relevance to nonprofit organizations, and for organizing efforts to spread the word about this opportunity.