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CARES Act & Financial Analysis for Loan Applications

The CARES Act includes a number of provisions that can help nonprofits. This page describes these funding opportunities, especially the Paycheck Protection Program (PPP), and recommends processes and provides financial tools you and your board can use when considering the PPP and other provisions of the CARES Act.

To apply for the PPP, contact your bank to see if they are providing these loans and what their application requirements are. If you can not use your bank check the SBA list. The SBA has reopened PPP applications until August 8, 2020.

See also this instructional video on applying for the PPP courtesy of Communities Rise.  501 Commons is also providing free application assistance and free assistance to help you with applying for forgiveness of a PPP loan.

Paycheck Protection Program

The Paycheck Protection Program is a Small Business Administration loan that is originated through a participating bank. The loan covers the 24-week (formerly 8-week) period after its origination and can be used to cover payroll costs, utilities, rent, and mortgage interest. The loan may be partially or completely forgiven if your organization is able to fulfill the requirements defines in the Treasury Department's PPP Fact Sheet.

Nonprofits must:

  • Have been in existence prior to February 15, 2020.
  • Be exempt from federal income tax under section 501(c)(3) of the IRS code, or is a war veterans’ organization exempt under section 501(c)(19) of the IRS code. This means nonprofits registered with the state but not the IRS are not eligible. Also, 501(c)(4) or 501(c)(6) organizations are not eligible.
  • Have 500 or fewer full and/or part-time employees.

Factors reducing loan forgiveness are:

  • Loan funds uses: Using the loan funds -  during the 8 weeks after getting the loan  - for anything other than payroll costs, mortgage interest, rent, and utilities payments. Payroll costs are defined in the PPP Fact Sheet.
  • Percentage of non-payroll costs: Spending more than 25% of the loan - in the 8 weeks after receiving the loan - on mortgage interest, rent, and utilities costs.
  • Number of staff: Decreasing your full-time employee headcount.
  • Level of payroll: Decreasing salaries and wages by more than 25% for any employee that made less than $100,000 on an annualized basis in 2019.
  • Re-hiring: You have until June 30, 2020 to restore your full-time employment and salary levels if you made any changes between February 15, 2020 and April 26, 2020.

Read more about loan forgiveness here: Key Considerations After Receiving PPP Loan Funds

Loan Amount

You will also need to have calculated your maximum loan amount for either January 1-December 31, 2019 or April 1, 2019-March 31, 2020. We recommend using the detailed calculator from Financial Management Associates (FMA) to calculate this. The calculator includes important information on what numbers are included in the calculation. The detailed portion can also act as your payroll summary if this you cannot create this in your accounting software.

Finding a Lender

Start with your current bank/lender. If that institution is not a PPP lender, search www.sba.gov/paycheckprotection/find or try the SBA Seattle District Participating Lender list.

Documentation Needed

Each bank determines the documentation they require but the following is a list of likely documents you will need to submit.

  • Form W2 for your 2019 employees and your Form W3 for 2019
  • IRS Form 941 for:  Q1, Q2, Q3 and Q4 of 2019 and Q1 of 2020 (if available)
  • Washington Employment Security Department and Labor and Industries reports for January 1-December 31, 2019 and January 1-March 31, 2020
  • Documentation that verifies health insurance premiums paid
  • Documentation that verifies retirement plan contributions
  • Your most recent 990 (either 2018 or 2019, depending on when you file)
  • A copy of the driver’s license or passport for the person authorized to sign for the loan
  • Payroll summary reports by employee for:  January 1-December 31, 2019 or April 1, 2019-March 31, 2020
  • A simple statement, less than paragraph, that documents the effect of the COVID-19 crisis on your business

Financial policies and board approval

  • Review your organization’s policies regarding taking on debt.  If you do not have such policies, now is the perfect time to develop a policy based on your organization’s comfort with debt. Most nonprofits use loans, other than real estate loans, only for working capital while waiting for a confirmed grant or contract payment.
  • Obtain the consent of your board before you apply. Ensure that board members understand both the loan terms and the loan calculations.  Provide them with an assessment of the risk that your organization would have to repay the loan (if unable to meet the loan terms listed above.)
  • Create a schedule and plan to produce regular reports for management and the board that will monitor your expenses so you can see if you are on track to qualify for loan forgiveness.

Financial Analysis for Loan Applications

Although a PPP loan may be forgiven, due to the uncertainty of the times we are in, you should work through the analysis described below and seek formal board approval before applying for the loan.

Your lender will ultimately be responsible for deciding on loan forgiveness. Many aspects of the program are still unclear so ask your lending institution for guidance as it becomes available.

Cash position

Cash "position" refers to the amount of available cash your organization has. Note that PPP loan money is intended to maintain jobs. It is not designed to increase your cash position beyond paying rent, mortgage interest, and utilities for an eight week period. If you are unable to generate revenue from your usual operations, you will need to determine if you have enough cash on hand to cover expenses that are not covered by PPP.

  • What level of cash reserves does you organization have?
  • Are you currently drawing down reserves to fund operations?
  • Does your current cash position allow your organization to keep or restore its FTE count as of February 15, 2020 by no later than June 30, 2020?
  • Could your organization afford to pay back a portion of the loan if it was unable to meet the requirements listed above? See page 3 of the PPP fact sheet for details on loan terms.

Cash-flow forecasting

After determining your cash position, create a cash-flow forecast that projects how much your organization expects to receive and pay out over the remainder of the year, or for at least 3 months:

  • How much cash will you have if you get the loan and use the proceeds as required by the PPP program?
  • How much cash will you have if you do not get the PPP program funding?
  • Evaluate if you can collect your accounts receivable, including donation pledges, grants and contracts, and fees or other earned income payments. Assume that the rate of customers delaying payment or defaulting increases. Investigate whether you can advance payment of grants or contracts.
  • Do cash flow projections so you know if you are likely to be able to use the loan proceeds in a way to allow the loan to be forgiven. Can your organization ensure that if it allocates 75% of the loan to payroll costs, as required, its total average payroll costs and FTE count can be at the same level as they were for the average calculated for the loan? Use the 501 Commons Cash Position & Cash Flow Workbook to help you determine your cash position and forecast cash flow.

Your lender will ultimately be responsible for assessing forgiveness on the PPP loan, so you should check in with your lending institution on guidance as it becomes available. Note that there is still a large amount of uncertainty, for which we expect guidance in the future.

Financial Tools for CARES Act Funding

Treasury Department's PPP Fact Sheet.

Use the 501 Commons Cash Position & Cash Flow Workbook to help you determine your cash position and forecast cash flow.

Financial Management Associates has provided an easy to use and frequently-updated calculator to support your PPP loan calculations.

Other CARES Act Programs

There are two other provisions within the CARES Act that you should review: the Employee Retention Tax Credits and the EIDL Emergency Advance.

Employee Retention Tax Credit

The Employee Retention Tax Credit may be an option for an organization that has been badly impacted by the coronavirus and cannot maintain its February 15, 2020 head count. You cannot receive both the ERTC and the PPP. See the IRS page here for FAQs on this tax credit or this fact sheet from the Treasury Department.

  • The Tax Credit will apply to qualified wages from March 12, 2020 to January 1, 2021.
  • ERTC is a refundable payroll tax credit of 50% of qualified wages up to $10,000 per employee per quarter. This means a refund of up to $5,000 per employee per quarter.
  • For tax-exempt organizations, the organization’s whole operations must be taken into account to determine eligibility.
  • Your organization must:
    • have been an ongoing concern at the beginning of 2020.
    • have fully or partially suspended operations by government order due to COVID-19 or
    • have seen a drop in revenue of at least 50 percent in the first quarter compared to the first quarter of 2019.

Emergency EIDL (Economic Injury Disaster Loan) Advance

EUDL applications are now closed but are expected to open up shortly. You can request a cash advance of up to $10,000 which is a grant and does not need to be repaid but if you receive the disaster loan, it cannot be converted to a grant.  The interest rate is only 2.75% and the loan can be repaid over a period of up to 30 years.

  • There cash advance is $1000 per employee, up to $10,000.When you apply for the EIDL, check the box stating that you would like an advance.
  • The advance is part of the loan, if that is the objective. It converts to a “grant” which does not have to be repaid if you decline the loan or if you are declined for the loan by the SBA.
  • If this is the only emergency aid you are seeking, the advance can be used for any operational need.
  • Please note, if you apply for PPP, the $10,000 becomes part of the PPP fund and can only be used for payroll costs, mortgage interest, rent, and utilities payments.
  • The application process is very easy and is done online at the SBA website.
  • The only way to receive the $10,000 is by direct deposit, not by check, so have your banking information at the ready.

Application Support & Emergency Financial Planning Assistance

Need assistance in understanding your options, evaluating your finances or completing the applications?  Here are some ways to get help: