You are eligible to receive a government bailout!
Under “INCREASED ELIGIBILITY FOR CERTAIN SMALL BUSINESSES AND ORGANIZATIONS,” the Paycheck Protection Program (PPP) explicitly notes that nonprofit organizations meeting the size limitation of “less than 500 employees.” Despite being called loans, the PPP actually provides free money, 100% backed by the federal government: as long as you prove you used it for eligible purposes, the lender must forgive the entire amount you can provide such proofs for. You can get up to 2.5x your monthly average payroll obligations covered, and use it for covering payroll, interest on a mortgage, rent, and/or utilities payments. Only up to 25% of what you get can be used for the non-payroll portions, and you have to maintain the number of employees you did last year if you were operating at that time. The objective of the program being to keep people from losing their jobs due to the need to stay home during the pandemic.
Get your documentation ready!
You have 3 options for periods you can use as the basis for the amount of loan you’re applying for:
- If you’ve been in continuous operation since February 19, 2019, congratulations! And also, you can use your monthly average payroll obligations from the period of 1 year prior to applying for this loan as the basis.
- If your organization could be considered seasonal, you can use February 19 through April 14th, or March 19th through June 30th, of 2019, as your basis – whichever period is more favorable to you.
- If you weren’t organized as a nonprofit entity as of February 19, 2019, you may instead use your payroll obligations from January and February 2020.
You will need to provide the following documentation, so gather these before applying:
- Tax forms such as W-2s, 1099-MISC forms, and unemployment insurance tax forms showing you had employees or contractors paid in the amounts you alleged.
- Note that no amount over $100,000/year for any individual employee will be counted.
- Financial disclosure such as bank statements showing the covered expenditures.
- Invoices from contractors showing the obligation to pay them.
Where and How to Apply?
You will need to go through a government-guaranteed lender. For best results, you can contact them with the help of an SBDC (Small Business Development Center). (Use these links to find the relevant entities.) The SBA has a sample form that lists what you need to provide the lender in order to apply. The SBDC should be able to review the documentation you’ve prepared and let you know if it’s correct — and it’s their job to help you get access to this money.
What happens next?
You should get a response not more than 15 days after submitting your application. If you went through an SBDC and they verified that your application documentation was correct, you can confidently expect to receive your paycheck protection loan. The federal government is backing these loans 100%, and paying an extra amount on top to the institutions which service them, so they have an incentive to grant the loans.
If you need the money sooner, you can apply for an “Emergency EIDL Grant” directly through the SBA. Good for up to $10,000 advanced as a grant, this amount will be subtracted from the amount you can be forgiven for if you are granted the loan – it’s an advance as a grant, not an extra amount on top. It may be used for roughly the same purposes as a PPP loan: mortgage or rent payments, payroll, sick leave pay, etc. Keep receipts for anything you use this advance for; you aren’t going to be required to submit anything to get it forgiven, but if someone decides to audit you, you had best have that documentation on file. If you do get the loan approved, don’t worry about the extra amount – PPP loans have no early repayment penalty.
That’s it, you’re paid!
You do have one further obligation to ensure the loan is forgiven: providing documentation that the loan proceeds were used for a covered purpose. Luckily, the same kind of tax and bank statement documentation you used to prove you need it will be usable to prove you used it for that need. Your monthly unemployment insurance tax receipts and the invoices paid to your independent contractors, plus bank statements, ought to prove your use for payroll. If you used any of the loan for other covered purposes, keep receipts for those mortgage, rent, or utilities payments.
Again: despite coming in the form of a loan, the amounts given out on the paycheck protection program are not expected to be paid back, ever. The CARES Act specifically gives the lender no legal recourse against you, and if you provide documentation of use for payroll costs, must hold you harmless and may not initiate any kind of enforcement action against you. This is income replacement for workers, who are presumed to be impacted negatively by the COVID-19 outbreak. The federal government is backing these loans 100%, and paying an extra amount on top to the institutions which service them, so they have an incentive to grant the loans.
Confused? Need help?
We at Growthlaw can consult with you and assist with your application. We can verify your documentation and put you in contact with your local SBDC and guaranteed lenders — and advocate for you with the lender if your application encounters trouble. Please contact us, and we can help you set up your loan for no charge to you.