By: Dan M. Smolnik

It may be worth considering that many non-profits, including churches, might utilize provisions in the new Coronavirus Aid, Relief, and Economic Security Act or CARES Act (P.L. 116-136) to provide some economic relief. Potential applicants should review the new law in detail and discuss its requirements with their attorneys.

The new law sets aside about $349 billion for loans to various nonprofit organizations, including churches. The bridge period is from February 15, 2020 to June 30, 2020. It also includes a provision that can make the loans forgivable.  Employers with up to 500 employees are eligible.   Availability is first come, first served, so prompt application is recommended.

How the Loan May Be Used

Loan proceeds may be used for:

  • Payroll
  • Group health insurance, paid sick leave, medical and insurance premiums
  • Mortgage or rent payments
  • Utilities
  • Salary and wages
  • Vacation, parental leave, sick leave
  • Health benefits

Payroll includes:

  • Salary or wages, payments of a cash tip
  • Vacation, parental, family, medical, and sick leave
  • Health benefits
  • Retirement benefits
  • State and local taxes (excludes Federal Taxes)


Limited up to $100K annual salary or wages for each employee

The application to Pastoral housing allowances is presently unclear, so I suggest that this be included in payroll costs.

The lenders will likely include the organization’s current banker, as funding will be routed through the SBA. The term of the loan is two years (unless forgiven) and it has a .5% interest rate.

Maximum loan amount is limited to:

  • Total average monthly payroll costs for the preceding 12 months (April 2019 to March 2020) multiplied by 2.5 or
  • $10,000,000 if you are a new church plant church or organization, use average payroll costs for January and February 2020 multiplied by 2.5.

No loan payments are due under this program for 6 months. No loan fees apply. No collateral or personal guarantees will be required.

Good Faith Certificate

Applicant organizations will need to provide a Good Faith Certification at Application and after coverage period – post July 2020.

  • Organization needs the loan to support ongoing operations during COVID19.
  • Support ongoing operations
  • Funds used to retain workers and maintain payroll or make mortgage, lease, and utility payments.
  • Have not and will not receive another loan under this program.
  • Provide lender documentation verifying information of funds used
  • Everything is true and accurate.
  • Submit tax documents and that they are the same submitted to IRS. Legal counsel should be involved here.
  • Lender will share information with the SBA and its agents and representatives.

Loan Forgiveness

The entire loan amount loan can be forgiven, if the borrower qualifies. In general, the loan is forgivable if the borrower employed the same number of people during the loan period as it did last year.

  • Full-Time Equivalent Employee (FTE) (as defined in section 45R(d)(2) of 11 the Internal Revenue Code of 1986)
  • The goal of this loan is for your 2020 FTEs to be equal to or greater than your 2019 FTEs. Essentially, the law provides that you must have equal to or more employees from February. 15, 2020, to June 30, 2020, as you did last year from February 15, 2019, to June 30, 2019.
  • If you will have fewer employees in 2020 than in 2019, then you need to complete a calculation:

Average FTEs per month in 2020 from February 15, 2020-June 30, 2020 / (divided by)

Average monthly FTEs from February 15, 2019-June 30, 2019 or Average monthly FTEs from January 1, 2020 to February 29, 2020.

Limitations on Forgiveness

  • Only so much of the loan as is used for the payroll costs, benefits, mortgage, rent, or interest on other debt obligations can be forgiven.
  • Not more than 25% of the forgiven amount may be for non-payroll costs.
  • Loan forgiveness will be reduced if the borrower decreases its full-time employee headcount.
  • Loan forgiveness will also be reduced if the borrower decreases salaries by more than 25% for any employee that made less than $100,000 in 2019.
  • Borrower has until June 30, 2020 to restore its full-time employment and salary levels for any changes between Feb. 15 to April 26, 2020

No collateral or personal guarantees will be required.

This note is intended only as an illustration of general legal principles and is not legal or tax advice. The reader is directed to discuss his or her specific circumstances with a qualified practitioner before taking any action.

Tags: Banking, Corporate, Joseph Pastore, Tax