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CARES Act and the PPP

Friday, March 27, 2020   (0 Comments)
Posted by: Sabrina Hidalgo
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As religious institutes are well aware, last evening on March 25, 2020 the United States Senate passed a $2 trillion emergency aid proposal by a vote of 96-0. The United States House of Representatives is expected to vote on Friday, March 27 and it is expected the bill will be signed by President Donald Trump. The legislation, H.R. 748, is entitled “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act is the third phase of the Federal Coronavirus Relief Legislation

The CARES Act is approximately 880 pages long. As the CARES Act continues to unfold, RCRI will provide resources related to the CARES Act and other relief as soon as they are made available. In the meantime, religious institutes should be aware of the Pay Check Protection Program that is part of the CARES Act as it may impact religious institutes.

 ThePaycheck Protection Program (PPP), found in Title I of the CARES Act as a $349 billion program, provides Small Business Administration loans to businesses with generally 500 or fewer employees.These loans are forgivable if the nonprofit keeps staff on the payroll between March 1 and June 30, 2020. Among the eligible organizations,the PPP of the CARES Act includes a 501(c)(3) nonprofit charitable organization as being eligible for such a loan.The amount of the loan is determined by a formula tied to the business’s payroll costs to a maximum of $10 million. Rent, utility payments, mortgage, insurance premiums and payroll support (such as employee salaries and paid sick or medical leave) are allowable loan uses.

The covered loan period is defined as beginning February 15, 2020 and ending on June 30, 2020. The maximum loan amount to $10 million is through December 31, 2020.

The loan forgiveness is equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage existing prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. 

Total potential loan forgiveness for the period shall include: Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation and any covered utility payment.

Eligible payroll costs are the amount incurred during the covered 8-week period (after origination date of the loan) compared to the previous year or time period. If wages are reduced, year over year, the loan forgiveness will be reduced proportionately. Eligible payroll costs do not include compensation above $100,000 in wages. 

Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period, so as to encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis.

Portions of loans not forgiven are payable over a maximum of 10 yeaers at a maximum of 4% interest.

The CARES Act does provide a limitation on a borrower receiving this assistance and an Economic Injury Disaster Loan (EIDL) through the Small Business Administration for the same purpose. However, the CARES Act does allow a borrower who has an EIDL unrelated to COVID-19 to apply for a PPP loan with an option to refinance that loan into the PPP loan. The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.

See the following for more information:

Attribution to the National Council of Nonprofits; Clark Schaefer Hackett CPAs and Advisors

Christopher Fusco


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