PUBLISHED 4/17/2020
Prepared by Michigan Community Resources
On March 27, 2020, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This law offers nonprofits and small businesses several sources of economic support in response to the COVID-19 pandemic and resulting economic hardship.
However, it was announced on April 16 that the $350 billion set aside for the CARES Act’s Paycheck Protection Program (PPP)[1] had already been depleted, although many nonprofits and small businesses had not yet had the chance to apply.
Congress is currently working though the next round of funding under the CARES Act, and national advocates have been working hard to ensure access to the next round of funds is more fairly dispersed with opportunity for more equitable access. As Michigan Community Resources continues to monitor funding opportunities available to Michigan nonprofits and small businesses for addressing the economic impact of COVID-19, we will share available programs and resources that we encourage small businesses and nonprofits to explore.
5 practical tips on preparing for the PPP loan application
As organizations navigate grants and loans, MCR offers the following steps to consider for applying for PPP or other loans that become available:
1. GET THE LATEST INFORMATION
Check the U.S. Department of the Treasury and the Small Business Administration for the latest information on PPP. These pages are updated frequently.
2. PREPARE YOUR ORGANIZATION’S DOCUMENTS
A. FINANCIAL STATEMENTS
- W3 Form: Transmittal of Wage and Tax Statements
- Tax returns for 2017, 2018, and 2019
- If newly incorporated: balance sheet, income statement, or statement of operating income and expenses
- Income statement for 2020
- Draft a statement explaining the organization’s situation and a proposal of how the organization intends on using the funds.
This Excel spreadsheet template may assist in calculations for the PPP: The Jewish Federations of North America, Payroll Protection Loan Calculator
B. ORGANIZATIONAL DOCUMENTS
FOR CORPORATIONS:
– Certification of incorporation and certificate of formation
– Master business license and other licenses
– Operating agreement
– Bylaws
FOR NONPROFITS:
– Articles of incorporation and certification of formation
– Master business license and other licenses
– Bylaws
– IRS 501(c)(3) determination letter
– Meeting minutes with board vote to approve borrowing, if required under bylaws.
FOR SOLE PROPRIETORS:
– A statement reflecting income and operating expenses
C. DETERMINE WHO IS AUTHORIZED TO CREATE A DEBT on behalf of the organization/business or make legally binding decisions on behalf of the organization/business.
D. CHECK GOVERNANCE DOCUMENTS (e.g., articles of incorporation) and bylaws to determine approvals needed to submit the loan application. The board may need to make a decision or empower the Executive Committee or Executive Director to act.
3. CONSULT AND COORDINATE WITH THE ORGANIZATION’S BANK.
- Check if the organization’s bank is an SBA approved lender.
- Determine whether the bank requires additional documents.
- Review the loan options and determine which loan is in the best interest of the business or organization.
4. PREPARE A FILE/DOCUMENT FOR LOAN FORGIVENESS APPLICATION.
- Track all expenses.
- Keep all documents used in support of the application.
5. CONSIDER OTHER FORMS OF RELIEF
The PPP and EIDL may not be in the best interest of the business or organization. Other options include:
- Paid Family and Medical Leave and payroll tax credit under the Families First Act
- Deferral of employer’s payroll taxes
- Employees retention credit
- Expanded unemployment insurance
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[1] More about the Paycheck Protection Program (PPP)
The Small Business Administration (SBA) is administering emergency small business loans to incentivize small businesses to keep their employees on the payroll. 501(c)(3) tax-exempt nonprofits and for-profit businesses are eligible for this loan/grant opportunity.
- Loan Amount: The amount will be calculated to be 250% (2.5 times) the business’s average monthly payroll amount.
- Eligibility: Entities that have been operating as of February 15, 2020, and have 500 or fewer employees (including full-time and part-time employees who are not FTEs).
- Loan Usage: Loan funds can be used to cover payroll, including health insurance costs and other payroll-related costs, rent, mortgage interest, utilities, and interest on debt taken out before February 15, 2020. These funds are to cover expenses incurred during the first 8 weeks after the loan originates. Note that federal payroll taxes are specifically excluded, and thus the loan cannot be used to pay FICA or federal income taxes, and at least 75% of the loan amount must be used for payroll expenses.
- Loan Repayment & Forgiveness: Loans covering the expenses listed above are forgivable if 1) the funds are used to pay for payroll, rent, utilities, and interest payments on mortgages; and 2) the business retains its employees during the 8-week loan period, paying the employees their normal salaries.
For more information on the PPP, visit the Small Business Administration and U.S. Department of the Treasury web pages.
Paycheck Protection Program: Your Feedback is Needed
The U.S. Small Business Association announced that it “is currently unable to accept new applications for the Paycheck Protection Program based on available appropriations funding.” It has been reported that Michigan has 25,000 loans approved with a total of $7.3 billion. Over the past two weeks, we have observed a significant amount of interest in this program from nonprofits all over Michigan.
Michigan Nonprofit Association (MNA) is advocating and working on behalf of nonprofits to ensure you have fair access to financial resources. Please take 5 minutes to help MNA gather important data on your experience with the Paycheck Protection Program.
CONTACT US:
Michigan Community Resources is continuing to offer trusted guidance for nonprofit organizations during this time. Please contact the MCR Legal Team at 313.962.3171 ext. 101 or legal@mi-community.org.
As part of our service to our clients, Michigan Community Resources regularly compiles and shares short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Your comments are always welcome.
Please note: These resources have been prepared by Michigan Community Resources with assistance from pro bono attorneys throughout Michigan as information only and does not constitute legal advice. This information is not intended to create and receipt of the information does not constitute a client-lawyer relationship.