CARES Act: Forgivable government loans for nonprofits

The latest view on not-for-profit accounting issues

employee achievement awards, tax reform, taxable income

Congress and the President signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law.  One of the big items in the CARES Act is the Paycheck Protection Program which provides some businesses including nonprofits for a forgivable loan that can be obtained through an SBA lender under the SBA 7(a) loan program.

Don’t miss: What should nonprofits focus on during pandemic?

Does your nonprofit organization qualify?  For how much?  How much will be forgiven?  Here is an overview:

Eligibility for the loan:

  • The 501c3 nonprofit organization has to have been in existence as of 2/15/20.
  • Have 500 or less employees (full-time and part-time are all counted).
  • The loan proceeds can be used for payroll costs, debt service and rent payments (for debts/leases incurred prior to 2/15/20), and utility payments.

Amount of loan:

  • Calculate the average monthly (based on the last year) amount of payroll costs.
  • Take that average amount times 2.5.
    • For seasonal employers, use the average monthly payroll for the 12-week period beginning on 2/15/19 instead of the last year.
    • In this calculation, payroll costs include salaries/wages/PTO (up to $100K in annual salary for each individual), severances, and health & retirement benefits.
  • The maximum loan amount is capped at $10M.

More on CARES Act: Impact to benefit plans

Amount of forgiveness equals:

  • Payroll costs incurred plus payments of interest on mortgages and rent/utility payments during the eight-week period beginning on the date of the origination of the loan.
    • Payroll costs for forgiveness are only up to $100,000 in wages for each individual employee.
    • Payroll costs also do not include qualified sick or family leave wages that are eligible for the credit under the Families Frist Coronavirus Response Act.
  • The amount of forgiveness is reduced based on a proportionate amount if the average number of full-time equivalent employees per month employed from 3/1/20 to 6/30/20 is less than the average from 3/1/19- 6/30/19. In other words, the forgiveness amount is reduced if the organization employed less people this year vs. last year.

Application for forgiveness:

  • You will have to submit an application that (at a minimum) includes proof of the number of full-time equivalent employees (such as payroll tax filings) and financial statements verifying payment on debt obligations.

There are other provisions in the CARES Act that can also benefit nonprofits.  Watch for additional blogs this week.

For more information and resources on COVID-19, see our coronavirus page. Feel free to contact your Henry+Horne nonprofit adviser with any questions.

Colette Kamps, CPA