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PPP Loan Applications & Loan Forgiveness

The 2020 CARES Act included a number of provisions to help nonprofits. Some of these programs have been renewed and new options are now available. 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 programs.

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.

501 Commons is providing free application assistance and free assistance with applying for forgiveness of a PPP loan. We can also give you access to a nonprofit lender, if you do not have a bank available to you.

Paycheck Protection Program

The Paycheck Protection Program is a Small Business Administration loan that is originated through a participating bank. The loan now covers a flexible period between 8 and 24 weeks after its origination and can be used to cover payroll costs, utilities, rent, and mortgage interest, covered operations expenditures, covered property damage, covered supplier costs, and covered worker protection.

Important Updates

The Paycheck Protection Program has been re-opened with applications starting to be accepted in January 2021 and closing on March 31, 2021.

PPP First Draw:

  • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans
  • 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act)
  • New: 501(c)(6) organizations, provided the organization does not receive more than 15% from lobbying and whose lobbying activities did not exceed $1 million in the most recent tax year ending prior to February 15, 2020

PPP Second Draw:

  • Current PPP applicants will be eligible for a second draw if the organization
    • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
    • Has no more than 300 employees; and
    • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020

Covered Expenses:

  • For both first and second draw loans, 60% of the loan proceeds still need to go toward payroll. However, in addition to rent, utilities, and mortgage interest, the other 40% may now be spent on:
    • Covered operations expenditures, including payment for any software, cloud computing, and other human resources and accounting needs
    • Covered property damage costs, including costs related to any public disturbances that occurred during 2020 not covered by insurance
    • Covered supplier costs, which includes expenditures to a vendor as a part of a contract or purchase order for goods that was in effect prior to the taking the PPP and were essential to the organizations operations at the time the expenditure was made
    • Covered worker protection, including personal protective equipment (PPE) and adaptive investment to help the organization respond to federal, state or local health guidelines related to COVID-19

*The information on this page is targeted at federally-registered nonprofits. If your organization is not federally registered as a nonprofit with the IRS, then you will be considered a for-profit entity for the purposes of the PPP and will need to look into how your business is structured to determine the best path for you (LLC, (c) Corporation, (s) Corporation, Partnership, etc.).

Forgiveness

  • See our page on factors and updates on forgiveness here.

Loan Amount

How do you calculate your loan amount?

  • Step 1:
    • Aggregate payroll costs from 2019 or 2020 for employees (U.S. residents only). See below for allowable payroll costs
  • Step 2:
    • Subtract any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred
  • Step 3:
    • Calculate average monthly payroll costs (divide the amount from Step 2 by 12)
  • Step 4:
    • Multiply the average monthly payroll costs from Step 3 by 2.5
  • Step 5:
    • Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid). See the examples below to illustrate different situations for possible calculations

Examples:

  • Example 1 – No employees make more than $100,000
    • Annual payroll: $120,000
    • Average monthly payroll: $10,000
    • Multiply by 2.5 = $25,000
    • Maximum loan amount is $25,000
  • Example 2 – Some employees make more than $100,000
    • Annual payroll: $1,500,000
    • Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000
    • Average monthly qualifying payroll: $100,000
    • Multiply by 2.5 = $250,000
    • Maximum loan amount is $250,000
  • Example 3 – No employees make more than $100,000, outstanding EIDL loan of $10,000.
    • Annual payroll: $120,000
    • Average monthly payroll: $10,000
    • Multiply by 2.5 = $25,000 Add EIDL loan of $10,000 = $35,000
    • Maximum loan amount is $35,000
  • Example 4 – Some employees make more than $100,000, outstanding EIDL loan of $10,000
    • Annual payroll: $1,500,000
    • Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000
    • Average monthly qualifying payroll: $100,000
    • Multiply by 2.5 = $250,000
    • Add EIDL loan of $10,000 = $260,000
    • Maximum loan amount is $260,000

What are allowable payroll costs?

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of:

  • Salary, wages, commissions, or similar compensation
  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of an employee's tips)
  • Payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal
  • Payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement
  • Payment of state and local taxes assessed on compensation of employees

What are not allowable payroll costs?

  • Any compensation of an employee whose principal place of residence is outside of the United States;
  • The compensation of an individual employee over $100,000 on an annualized basis
  • Federal employment taxes imposed or withheld during the applicable period, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
  • Qualified sick and family leave wages paid under the Families First Coronavirus Response Act, which has an associated tax credit

Finding a Lender

Start with your current bank/lender. If that institution is not a PPP lender, use the PPP Lender Match tool available through the SBA here. 501 Commons can also help you originate a loan through our partner the National Development Council (NDC). If you are interested in our services, please fill out the inquiry form here. Note: technical assistance from 501 Commons will start on February 4 and you may start an inquiry beginning on January 25.

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 or 2020 employees and your Form W3 for 2019 or2020 (as soon as it's available)
  • IRS Form 941 for:  Q1, Q2, Q3 and Q4 of 2019 or 2020
  • Washington Employment Security Department and Labor and Industries reports for each quarter of either 2019 or 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  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 8 to 24-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 with the assistance of the PPP?
  • Could your organization afford to pay back a portion of the loan if it was unable to meet the forgiveness requirements?

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 60% 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

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

Other CARES Act Programs

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 can now receive both the ERTC and the PPP so long as you avoid "double dipping".

  • This is a good option for those who cannot apply for a new PPP
  • As stated above, as of January 1, 2021, organizations can now claim the ERTC even if they have a PPP but only for wages in excess or not forgiven by the PPP
  • Additional eligibility for full or partial reduction in business due to government orders
  • The ERTC is a reduction in the amount due on an organization's 941 up to 70% of qualified wages
  • To qualify, your organization must have seen a year over year decline of 20% in gross receipts
  • The limit on qualified wages is $10,000 per employee
  • Organizations with under 500 or fewer employees can advance the credit based on wages paid in the same quarter as the previous year

Continue to follow updates and information on this tax credit by monitoring the IRS page here.

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:

  • City of Seattle Office Of Economic Development is providing Technical Assistance to Access Federal Small Business Administration Disaster Loans. For more information, visit their webpage, which includes translated information about the Economic Injury Disaster Loans.  You can reach them by email OED@seattle.gov or call 206-684-8090.