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The CARES Act: What Nonprofits Need to Know About Small Business Interruption Loans

On March 27, 2020, the president signed into law the highly anticipated Coronavirus Aid, Relief, and Economic Security (CARES) Act. The legislation has many provisions of interest to nonprofit organizations. One of the key provisions allows nonprofits to obtain small business interruption loans and subsequent loan forgiveness. The following is a summary:

Small Business Interruption Loans - SBA 7(a) Loan Program

  • Available to any business concern, section 501(c)(3) nonprofit organization, veterans organization, or tribal business concern that employees 500 or fewer employees.
  • The maximum loan amount is the average monthly payment of payroll costs during the one-year period before the date on which the loan is made (for seasonal employers it’s the 12-week period beginning February 15, 2019) times 2.5, not to exceed $10 million.
  • The maximum loan maturity is 10 years at an interest rate not to exceed 4%.
  • Payroll costs and exclusions are specifically defined.
  • Allowable uses for the loans include the following:
    • Payroll costs, including costs for health care benefits
    • Payment of interest on mortgage obligations
    • Rent
    • Utilities
    • Interest on any other debt obligations that were incurred before the covered period
  • Eligibility
    • You were in operation on February 15, 2020; and
    • Had employees for whom you paid salaries and payroll taxes; or
    • Paid independent contractors, as reported on a Form 1099-MISC.
  • Each borrower must certify the following:
  • Indicate that uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations;
  • Acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; and
  • Indicate that you do not have an application pending for another SBA 7(a) loan or have not received cash under another SBA 7(a) loan for this same purpose.

Loan Forgiveness

  • Recipients of the 7(a) loan program from March 1, 2020, to June 30, 2020, (covered period) are eligible for loan forgiveness.
  • Forgiveness is an amount equal to the cost of maintaining payroll continuity during the covered period.
  • Reduction in the number of employees factors into the final calculation of the loan forgiveness amount.
  • You must submit an application for forgiveness to the lender of the loan.
  • The lender must provide a decision within 60 days of receiving the application.
  • Guidance and regulations for implementing this section must be enacted no later than 30 days after the legislation is enacted.

For the latest regulatory updates and more information on keeping your business running through disruption, visit the Armanino COVID-19 Resource Center.

Updated April 01, 2020

March 26, 2020

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