Update on April 28: The Small Business Association has resumed accepting applications as of April 27
[For more resources available to news organizations in light of the coronavirus pandemic, please visit lenfestinstitute.org/coronavirus.]
Last month, as part of the coronavirus stimulus package signed by President Donald Trump, the Small Business Administration launched the Paycheck Protection Program, a $349 billion loan guarantee program for small businesses and nonprofit groups.
Both for-profit and nonprofit news organizations are eligible for the Paycheck Protection Program.
Earlier this week, Knight Foundation organized a webinar with nonprofit consulting group FMA, which walked participants through key details they need to know to apply for relief under the PPP. FMA has assembled a great toolbox of resources, and we captured some frequently asked questions below to help you know if the program is right for your outlet.
Though this session was aimed at nonprofits, the FAQ is intended to be a resource for all organizations, and it aims to provide an overview of the loan while covering the application requirements, eligibility, loan usage, deadlines, and other logistical details:
Who is eligible for the Paycheck Protection Program?
An organization that has 500 or fewer employees, and certifies that the current economic uncertainty makes the loan request necessary to support ongoing operations. Additionally, the organization should have been in operation on February 15, 2020. Nonprofits must be tax-exempt under sections 501(c)(3) or 501(c)(19) of the Internal Revenue Code.
What can the loan be used for?
The loan is designed for eight weeks of payroll, rent, mortgage interest, and utilities. Additionally, 75% of the loan must be used on the payroll.
How much can an organization borrow?
The loan is set at 2.5 times of the organization’s monthly payroll. This includes most salaries, severance, paid leave, and some benefits such as health insurance, retirement, and state and local taxes. However, the loan cannot be used to pay federal taxes. The loan amount will be set by the lender, and cannot exceed $10 million. You can calculate your organization’s estimated amount of Payroll Protection Program Loan eligibility on FMA’s Paycheck Protection Program Toolbox’s page.
Will the loan be forgiven? If so, how much will be forgiven?
The loan can be forgiven up to 100% if the organization keeps or increases full-time employees, maintains employees’ salaries, and spends the loan according to the guidelines. If the organization decreases salaries of employees making less than $100,000 a year by more than 25%, reduces the number of full-time employees, or spends the loan on non-approved expenses then those costs will be payable at an interest rate of 1%.
When is the deadline to apply for the PPP?
The application process functions on a first-come-first-served basis. Therefore, the earlier you apply, the better. Although some lenders are not ready to accept applications yet, many others are. You should check with your bank.
What further steps should an organization make immediately?
Organizations should reach out to their bank to confirm that it is a Small Business Administration lender and that it will be processing PPP applications. If not, they should ask for a referral. It is crucial that outlets have a clear understanding of the application process. Non-profit organizations should get authorization from their board and gather payroll information from the last 15 months, January 1, 2019 – March 31, 2020.
What happens after an organization applies for a PPP loan?
Once the organization’s application has been processed, the funds will be distributed as soon as possible. As the lenders are regulated to streamline the process, the usual timeline is a few weeks. As of April 8, some loans are being approved.
Is an organization eligible for this loan if it derives its nonprofit status from a fiscal sponsor?
Here’s FMA’s guidance on the topic:
“Comprehensive Fiscal Sponsorship (also known as Model A): If your fiscal sponsor practices the direct project model of fiscal sponsorship where the fiscal sponsor pays your staff directly as W-2 employees of the fiscal sponsor, manages your payroll or is the employer of record for project expenses, and maintains all legal and fiduciary responsibility for the sponsored project, you are likely not eligible to apply on your own. Discuss your situation with your fiscal sponsor.
Pre-Approved Grant Relationship Fiscal Sponsorship (also known as Model C): If your relationship with your fiscal sponsor is a regranting model of fiscal sponsorship, you are likely a separate entity or 1099 contractor responsible for managing its own tax reporting and liability issues. Therefore you are likely an independent entity eligible to apply on your own if you otherwise qualify. Please note there is distinction in the guidance on 1099s applying vs. legally organized entities.”
How can an organization maintain its FTE requirement if some employees quit or voluntarily leave their roles during the eight-week period?
More guidance on this subject will be coming out soon. Until then, since the focus of the loan is on keeping people employed, rehiring is a key response to employees leaving their jobs.
Can an organization hire new employees or contractors using the PPP loan?
While W- 2employees are considered payroll expenses, contractors are not. Although the goal of this loan is to maintain existing staff rather than to expand it, the SBA did not yet comment on the issue of hiring. The SBA will be looking at FTEs over several months (including part-time people as .5 FTE.) They will look at several calculations including how many FTEs the organization has compared to last year.
If an organization’s 12-month payroll does not accurately reflect the average payroll cost because the organization increased the number of employees, can it use a different average?
The organization can use either calendar year 2019 data or the last 12 months before applying for the loan. The organization cannot use a different average if it has been operating before July 1, 2019. Although seasonality has a different consideration if the organization increased the number of employees, the only option would be to choose the 12 month period that gets it the highest average.
What is the preferred format for submitting payroll data in a case where some staffers were 1099 contractors during the past 12 months?
An organization cannot use Form 1099 for the payroll data. If the organization uses a payroll company they should be able to pull a report together. Otherwise, the organization would want a form similar to Form 941 or a payroll ledger to calculate the base. Banks have been giving advice about what they need. Some require W-2s or 941s, while others want a payroll ledger report.
If some of the organization’s staff is funded by restricted grants or gifts, does the organization only apply for the support for staff that is supported by unrestricted funds?
The SBA has not yet come up with a clear answer to this question. However, for now, an organization’s best approach would be to use these funds to cover all employees in the next eight weeks and then use the restricted funding after it exhausts these dollars.
Is non-profit board approval a requirement for the lender?
Most organizations require this as part of the standard operating procedure. The organization should make sure that it is following its internal procedures. Although many banks are asking for a resolution from the board, this preference varies by lender.
How would a new organization handle the application process?
Based on guidance, an organization is considered new if it launched after July 1, 2019. To be eligible for the loan, the organization has to be in operation and have employees that are paid as of February 15, 2020. New organizations that do not have 12 months of payroll data should take payroll from January 1, 2020 to February 29, 2020.
Does the loan cover FICA (Federal Insurance Contributions Act)?
No. Eligible expenses are the same ones included in your organizations’ payroll base. Support for this happens in other parts of the CARES act. More guidance on this topic can be found here.
Should the organization requesting the loan create a new ‘program code’ and ask staff to put their time there?
The organization should track its costs for loan forgiveness in a way that is consistent with other donor-time tracking.