A $2 trillion
coronavirus impact aid bill has been approved that provides economic relief to
workers and businesses; and, these provisions extend also to 501(c)(3)
entities, which include churches, Christian schools and other religious bodies.
Churches are eligible
for the payroll protection loans provided in the legislation.
WHAT THE LAW MEANS
In a summary of the
Coronavirus Aid Relief Economic Security (also known as C.A.R.E.S.) the Small Business Assistance portion of the
legislation includes nonprofits with payrolls not exceeding 500 employees per
location and caps any single loan at $10 million.
LOAN ESSENTIALS
Basically, churches may
receive a loan equal to 2.5 times the 12-month average of all salary costs.
Essentially, this means each nonprofit will receive a loan equal to 2.5 months
of payroll costs.
Up to 100 percent of
these loans may be forgiven, based on employee retention at the end of June 30,
2020. Methods for calculating loan forgiveness will be provided in later reports.
Church leaders should
create a spreadsheet totaling all annual payroll costs per employee, not to
exceed $100,000 per employee from March 2019 through February 2020. Costs may
include:
— salary
— group health care
benefits
— paid sick, medical, or
family leave
— insurance premiums
— commissions, or
similar compensations
— telephone
reimbursement
— travel reimbursement
— retirement
— housing allowance
Divide the total annual
cost by 12 and then multiply this number by 2.5 to determine the qualifying
loan amount.
Also, nonprofits can
include requests that the loan also cover:
— payments of interest
on any mortgage obligation (which shall not include any prepayment of or
payment of principal on a mortgage obligation)
— rent (including rent
under a lease agreement)
— utilities
— interest on any other
debt obligations that were incurred before the covered period
Churches qualify for the
payroll protection loans and the other provisions for nonprofits if they have
set up a 501(c)(3). You will need an IRS
exemption letter validating their 501 (c) (3) statue as well as an Employment
Identification Number in order to complete an application for the payment
protection loan.”
This is not an unlimited amount of money. This money will be
available on a first come, first serve basis. Be ready to act Monday.
MOST COMMON QUESTIONS:
Why are small business loans being made available in
the Stimulus package? The purpose of these loans is to assist small
businesses in keeping workers paid and employed during the pandemic. These
loans are designed to give employers an incentive and provide the ability to
keep their employees instead of laying them off and shutting down their
businesses. Tax-exempt entities are specifically recognized as eligible to
apply for these loans that are guaranteed by the federal government.
How do the small
business loans work for churches and ministries? Churches and ministry organizations that are exempt from
tax under Section 501(c)(3) of the Tax Code and that have fewer than 500
employees at one location and self-employed individuals, individuals operating
as a sole proprietorship or individuals operating as an independent contractor,
may apply for a Paycheck Protection Loan to cover payroll and related employee
expenses for the period February 15 through June 30, 2020, to help them sustain
their ministries.
How can the loan
proceeds be used? The loan proceeds may be used to pay payroll
costs, group health insurance benefits, paid sick leave, medical and insurance
premiums, mortgage interest payments, rent payments, utilities or interest on
other loans outstanding at the time of the pandemic.
What costs are
considered payroll costs? Salary or
wages, payments of a cash tip, vacation, parental, family, medical, or sick
leave, health benefits, retirement benefits, state and local taxes. Note,
however, that salary expenses above $100,000 per employee are not eligible for
consideration as payroll costs and loan proceeds may not be used to pay
salaries above $100,000 per employee.
How much can a
church or ministry borrow? The amount
that may be borrowed is the total average monthly payroll costs for the
preceding 12 months (March 2019 through February 2020) multiplied by a factor
of 2.5. For example, if the average payroll costs for the preceding twelve
months were $20,000, the maximum amount of the loan would be $20,000 times 2.5
for a total of $50,000. The maximum amount available for a Payroll Protection
Loan is $10,000,000.
Can a self-employed
pastor apply for a Payroll Protection Loan? The
Stimulus package allows self-employed individuals to apply for these loans.
Under certain circumstances, pastors are considered self-employed and should be
eligible to apply for a payroll protection loan under the same terms and
conditions as other loan applicants. For example, if a pastor's average monthly
salary for the preceding twelve months was $5,000 then the pastor should be able
to apply for a loan in the amount of $12,500.
How soon must the
church, ministry or pastor repay the loan? Payroll
Protection Loans may include a term of up to 10 years from the date of
application.
What interest rate
will these Payroll Protection Loans bear? The
maximum interest rate for these loans is 4 percent per year.
Is the church,
ministry or pastor required to pledge collateral for the loan, or will another
party have to guarantee repayment? No. Further,
the loans are non-recourse to the borrower with the exception that if loan
proceeds are used for an unauthorized purpose, the then loan may be collected
from the borrower.
May payments under
the loan be deferred? Yes, for a period not less than six months but
not to exceed more than one year from the date of the loan.
May all or part of
the Payroll Protection Loan be forgiven? Yes, the
program is designed to encourage employers to retain employees and loan
forgiveness is a key feature of these loans. A ministry under a covered loan
can have all or a portion of the principal of the loan forgiven in an amount
equal to payroll costs, mortgage interest, rent, or utility costs during the
eight-week period following the origination of the loan. The forgiven amount,
however, may be reduced based on a formula that compares the ministry's
employment in prior pre-COVID periods with the number of employees and each
employee's wage or salary in the eight-week period following the origination of
the loan.
Who is responsible
for administering this program? The loan
program will be administered by the Small Business Administration (SBA) under
its existing Section 7(a) business loan program. Certain requirements
associated with typical SBA loans, such as guarantees, collateral, and
"credit available elsewhere" underwriting, have been relaxed or
eliminated.
How can a church,
ministry or pastor apply for a Payroll Protection Loan? If you choose to pursue a Payroll Protection Loan, you
will need to apply through an approved SBA lender, which includes most local
banks. The approved SBA lender will assist you in completing the application
and providing the required documentation for the loan. The loan documentation
requirements and other traditional requirements to obtain a small business loan
are substantially relaxed under this loan program.
