Churches urged to apply quickly for loans provided in coronavirus relief bill

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.