Understanding the CARES Act and PPP Loans
UPDATE (May 8, 2020): As of 10:30 am ET on Monday, April 27, 2020, the Small Business Administration (SBA) is accepting new applications for loans from the Paycheck Protection Program (PPP). The process outlined below for preparing and submitting applications remains the same for this new round of funding. We will continue to update this page with any new developments.
On April 23, the SBA released a new rule stating that prospective PPP borrowers must “take into account their current business activity AND their ability to access other sources of liquidity sufficient to support…ongoing operations” before applying for and accepting a PPP loan (see Q31). In other words, organizations must demonstrate that the PPP is necessary for them to be able to sustain operations. Borrowers that received a PPP loan before the April 23 guidance but do not meet this requirement can repay the loan in full by May 14, 2020 without consequence (see Q39).
The Coronavirus Aid Relief and Economic Security (CARES) Act, the largest emergency aid package in U.S. history, was signed into law on March 27, 2020. The CARES Act includes more than $2 trillion to help individuals and businesses struggling amid the COVID-19 pandemic. Learn more about the CARES Act here and here, and read our FAQs.
The bill includes a provision for $350 billion in Small Business Administration (SBA) loans. Known as the Paycheck Protection Program (PPP), the loans are intended to help small businesses and nonprofits keep their organizations running and workers employed through the critical months ahead.
The application process for the Paycheck Protection Program (PPP) loan program is now open. Click here to access the application; please also refer to these detailed instructions for completing and submitting the application and this additional FAQ from the Treasury Department (updated May 6, 2020).
Nonprofits with 501(c)(3) status and less than 500 employees are eligible for these loans and could be granted up to $10 million. Depending on a variety of factors, your organization could be eligible for 100% loan forgiveness, which essentially turns the loan into a grant.
The loans will be given on a first-come, first-served basis until the funds are spent so it is important that your organization moves as quickly as possible to submit your application.
While the window for applications is now open, many banks may not yet be ready to process the applications. We still recommend that you contact your local banks and are ready to submit your application as early as possible.
Due to the large number of anticipated submissions, individual banks may vary in the amount of time they will take to process applications and obtain the necessary funds from the Small Business Administration (SBA).
The loans can be used for operational costs, including:
- health benefits, paid sick, medical or family leave, and insurance premiums
- mortgage interest
- interest on debt incurred before February 15, 2020
Next Steps for Applying
Here are five steps you can take now to be prepared to submit your application:
- Watch this recording of a webinar from the Jewish Federation of North America and review these resources, applicable to organizations across all sectors:
- A simplified analysis and full analysis of the CARES Act.
- A quick comparison between traditional Economic Injury Disaster Loans and PPP Loans.
- A more detailed FAQ document.
- A resource that helps individuals, small nonprofits and large nonprofits understand how to access the benefits available to them.
- A fact sheet from the Treasury Department about the PPP.
- A Paycheck Protection Program toolbox with helpful tools.
- Check to see if the bank your organization currently works with is on the list of approved lenders or search for an approved local lender on this interactive map. You can apply for a PPP loan through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating.
- Refer to the sample calculation document to calculate your payroll costs, which will help you estimate your total loan request.
- Gather internal decision makers (C-suite, board members, finance team, etc.) to review your governance process and reach consensus on the decision to apply for a loan. Be sure to ask your board members for counsel on the process, as they may have additional insights that can be helpful.
- Complete your application and be prepared to submit as soon as your bank is ready to process it.
Update on the PPP Loans
Please note that not all banks may be up to speed on the latest information.
- Loan forgiveness will be provided for funds spent on documented payroll costs, mortgage interest payments, rent payments, and utilities during the first 8 weeks of the loan. However, not more than 25% of the forgiven amount may be for non-payroll costs.
- The interest rate on the portion of the loan that is not forgiven will be 1%.
- The deferral period on these loans is six (6) months, and interest accrues during the deferral period.
- The term of the loan (maturity date) is two (2) years from the date of loan origination.
- The calculation of payroll costs is 250% (2.5 times) your monthly payroll costs.
- The $100,000 cap per employee is on salary only (defined as wages, tips and/or commissions) and does not relate to benefits and related taxes.
- Contrary to previous understanding, applicants may not include independent contractors in their calculation of payroll costs because independent contractors have their own opportunity to apply for loans.
It is important to note that the Schusterman Family Foundation is not providing any legal, tax, financial or business advice. The information included in here is for general reference only and should not be relied upon as being definitive, either generally or with respect to any particular situation. You should consult your own professional advisors with respect to any of the topics discussed here.