One of the biggest challenges facing non-profits during the coronavirus crises is keeping the cash flowing so that they can continue to serve their non-profit missions. The Coronavirus Aid, Relief, and Economic Security Act, also known as the “CARES Act,” is designed to assist businesses, including non-profits, with the economic challenges they are currently facing. The CARES Act addresses these challenges in two major ways: it provides incentives for charitable donations, and it creates several government assistance programs that can help non-profits to continue to provide services, pay employees, and keep the lights on.
1. Charitable Giving Incentives. The CARES Act provides incentives for people to increase their charitable giving as a result of the pandemic, including an above-the-line deduction for non-itemizers for up to $300, for cash contributions made during 2020 to public charities, and the removal of the cap on the deductibility of cash contributions for those who itemize. The goal of these incentives is to encourage giving to non-profits to enable them to meet the increased demands for their services and ensure that they have the needed resources to continue to serve the public.
2. Paycheck Protection Program. The Payroll Protection Program resembles a restricted grant: if you spend the money on approved uses and follow the rules, you get to keep the money; otherwise, you must give it back. The Payroll Protection Program provides for loans up to 2.5 times the average monthly amount paid by the business to satisfy payroll costs during the 12 month period preceding the loan (capped at $10 million). These loans are guaranteed by the Small Business Administration (SBA). To qualify, a non-profit must be exempt from taxation under Internal Revenue Code Section 501(c)(3) and have fewer than 500 employees. These loans are not available to non-profit 501(c)(4), (6), or (7) organizations. The loans can be used for payroll costs, group health care costs, utility payments, and mortgage and rent obligations. Complete loan forgiveness of principal (accrued interest remains due) is possible if you maintain employment levels for eight weeks after loan origination. Interest rates are fixed at 1.0%, with a six-month payment deferral, although interest will accrue during this time. The repayment period on the loan is two years.
3. Economic Injury Disaster Loan Program. For 2020 only, a “private nonprofit organization” with 500 or fewer employees may apply for an economic injury disaster loan (EIDL) with the SBA. The maximum amount of the loan is $2 million, and the loans are not forgivable. EIDL funds may be used to maintain payroll, provide sick leave, or make mortgage or rent payments, among other purposes allowed by the EIDL program. The interest rate on the loan is 2.75% for non-profits, with a 30-year term possible. Applicants may also receive up to $10,000 as an advance against the EIDL within three days of application if SBA verifies that the entity is eligible. This advance need not be repaid, even if the borrower is denied an EIDL. Note that the phrase “private nonprofit organization” suggests that non-profits in addition to 501(c)(3) organizations (e.g., 501(c)(4), (6), and (7) organizations, among others) may be eligible for this program, as distinguished from the Paycheck Protection Program.
4. Industry Stabilization Fund. For non-profit organizations with more than 500 employees, the Industry Stabilization Fund provides for $454 billion in financial assistance to “eligible businesses including, to the extent practicable, non-profit organizations” with between 500 and 10,000 employees.
5. Self-Insurance and Unemployment. For non-profits that have chosen to be “reimbursable employers,” the CARES Act provides that the organization may be reimbursed for one-half of the amounts paid into a state unemployment trust fund between March 13, 2020 and December 31, 2020.
6. Employee Retention Payroll Tax Credit. All non-profit organizations (regardless of type) are eligible for the employee retention payroll tax credit if 1) its operations were fully or partially suspended by governmental order due to the coronavirus, 2) its gross receipts declined by more than 50% when compared to the same quarter in a prior year, and 3) the organization did not receive a Payroll Protection Program loan. The credit is a refundable payroll tax credit equal to 50% of “qualified wages,” including health plan expenses. If your non-profit has more than 100 employees, qualified wages include those wages paid to an employee even though the employee was unable to work due to a full or partial suspension of operations due to a governmental “stay at home” order. If your non-profit has 100 or fewer employees, “qualified wages” include all wages paid whether the employer is open for business or subject to a shutdown order.
There are various options for non-profits to alleviate some of the financial stress during these challenging times. You should contact your attorney and financial advisors to discuss your eligibility and to determine which programs may be best for your non-profit organization.