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Table of Contents
CARES and PPP
Note that given the changing nature of federal policies and loan programs, questions and responses are accurate to the best of our knowledge at the time of the inquiry.
Q: How do I apply for the PPP?
General steps on how to apply:
- Calculate your average monthly payroll cost.
- Complete the PPP application form and gather required documents.
- Submit your application (with documents) to an SBA-approved lender.
- If your chosen SBA-approved lender is not yet processing applications, you can still reach out to set up a conversation with them and indicate your interest.
- Alternatively, you can submit an inquiry to the Community Reinvestment Fund to let them know you would like to apply once they begin processing applications.
Initially required documents:
- 2019 IRS quarterly 940, 941 or 944 payroll tax reports
- Itemized 1099 forms (just in case your lender requests this)
- Last 12 months of payroll reports beginning with your last payroll date, including the following:
- Gross wages for each employee, including the officer(s) if paid W-2 wages
- Paid time off for each employee
- Vacation pay for each employee
- Family medical leave pay for each employee
- State and local taxes assessed on the employee's compensation for each employee
- Documentation showing the total of all health insurance costs and premiums paid in the prior 12 months
- Documentation showing all retirement plan funding or administrative expenses paid (excluding employee contributions) in the prior 12 months
Additional Documents needed to apply:
- Board of Directors resolution giving permission to apply for PPP
- Determination letter from the IRS
- Internal financials from 2019 (income statement, balance sheet)
- Lease agreement and documentation of recent rental payments
- Mortgage agreement and documentation of recent payments showing amount of interest paid
- Note: Lenders may have additional requirements as well as they finalize their underwriting processes
Q: I filed for an Economic Injury Disaster Loan (EIDL) back on March 23 and it’s been received and is in the review phase. It said non-profits are included, but I heard that the applications opened on April 3. Is that ONLY for the Paycheck Protection Program, or is there a non-profit loan program that I’m not seeing?
A: The PPP went live on Friday, April 3. Some SBA-approved lenders are taking applications, with more lenders are continuing to come online. The EIDL program has been up and running for some time, and just about all nonprofits are eligible to apply. There’s no federal nonprofit-only loan program.
SBA guidance allows you to apply for a PPP loan in addition to an EIDL, as long as you don't use the funds from each loan for the same expenses. In addition, an EIDL can be refinanced into a PPP loan. (Source)
Q: Does the $100,000 cap apply to the total payroll amount (salary + benefits) or only the salary portion of total payroll amount?
A: The $100K cap doesn’t include benefits. It only includes salary, wages, other compensation, and tips. Benefits and other payroll costs are considered separately. (The CARES Act defines benefits as group healthcare benefits including insurance premiums; payment for non-COVID-19 family, medical, or sick leave; payment for vacation; and retirement benefits.) For more information, check out the Treasury Paycheck Protection Program Information Sheet.
Q: What is the difference between a Paycheck Protection Program loan and an Economic Injury Disaster Loan?
- Paycheck Protection Program loans are 2.5x your previous 12 months’ payroll up to a maximum of $10M. Any dollars from this loan used to cover qualifying expenses will be forgiven, subject to certain criteria.
- Economic Injury Disaster Loans are available at a maximum of $2M (secured), and unsecured loans are available up to $25K. Amounts are determined by an SBA loss verifier, who will estimate what your working capital needs are. These loans are intended to provide working capital for expenses such as fixed debt and payroll costs. The interest rate is 3.75% and the loan term can be as long as 30 years. This loan is not forgivable, but it comes with an opportunity to receive a loan advance of up to $10K (which you should receive within three days of making application (source). Organizations do not have to pay back the advance if is used to cover eligible expenses, even if they are ultimately not approved for a loan. Note: EIDLs are not meant to replace lost sales or revenue. Here is a questionnaire to see if the EIDL is right for you.
- Both loan programs can be used to cover:
- Payroll expenses
- Rent and/or mortgage interest
- Benefits (healthcare, non-COVID 19 sick/family leave)
- Debt service
Q: What are the criteria for loan forgiveness?
A: For the Paycheck Protection Program, the amount eligible for loan forgiveness is equal to:
- Payroll expenses, including salaries paid to employees and contractors of $100K or less (and as long as compensation and employee levels are maintained)
- Benefits (healthcare, non-COVID-19 sick/family leave)
- Rent and/or mortgage interest (over the 8-week period after the loan is made)
- Utilities (over the 8-week period after the loan is made)
- Debt service (over the 8-week period after the loan is made)
For Economic Injury Disaster Loans, loan forgiveness is NOT available. However, the $10K loan advance is considered a grant if it is used to cover:
- Payroll expenses, including salaries paid to employees and contractors
- Benefits (healthcare, non-COVID-19 sick/family leave)
- Paid sick leave due to COVID-19
- Increases in supply costs due to supply chain interruptions
- Debt service
Q: Which loan program is the best fit for me?
A: This depends on your organization’s upcoming working capital needs and capacity for debt.
- EIDL loans will result in an increase in your organization’s long-term debt.
- PPP loans will result in a temporary increase in your organization’s long-term debt, but a significant portion of that debt will be eligible for forgiveness.
Q: What actions can I take right now to prepare?
- Figure out whether it's worth pursuing the loan/grant.
- Are you a 501(c)(3) with fewer than 500 employees?
- Are you likely to avoid significant layoffs between now and June 30?
- Then almost definitely yes!
- Find out if your bank is providing these loans or find one in your area that is.
- Tip: Just search the name of your bank + “SBA loan” or go to the bank locator on the SBA website.
- Assign an Owner to keep tabs on updates and apply for the loan as soon as the application becomes available.
Q: Should I apply for these SBA loans?
A: If it makes sense for you, yes. But continue to make decisions as if you don’t get the funding.
For more information, check out these resources:
- US Chamber of Commerce Foundation
- National Council of Nonprofits CARES ACT Resources for Nonprofits
- Independent Sector
Q: Do you have any resources for nonprofits planning for economic recessions?
A: See below for articles, webinars and other resources.
Q: Do you have any resources for nonprofits, specifically, best practice advice on how to manage finances and forecasting, and any process recommendations for our board and me to consider when and how to make budgetary adjustments as the year goes on?
A: You most likely will have to reforecast your current budget.
- Reforecasting the budget periodically may be appropriate for some organizations, particularly those facing major unexpected changes during the year, and it’s an important exercise for the budget to remain a useful management tool. This process involves creating a separate, revised budget that uses year-to-date results as well as management's best estimate of the remaining months of the fiscal year. While creating an amended budget, formally reapproved by the board, is not commonly done, it may be warranted in times where the fiscal year is likely to end very differently than predicted in the original budget.
- Cash flow projections often are a useful tool in Scenario Planning. Cash flow projections can be engaged in evaluating the impact of various scenarios. For instance, what if the grant arrives six months later than expected? You can create a few "Plan Bs" that suggest either (i) drawing down on a line of credit, (ii) drawing down on reserves, or (ii) discussing delaying the payment of certain bills with creditors.
- Upswing or Downturn: How to Make Your Nonprofit Ready for Anything
- Top Three Measures of Financial Health
- What Nonprofits Should Do Right Now This short article discusses three things that nonprofits should do and comes with tools to download:
- An Exploration of Nonprofit Budgeting
- This blog series offers practical advice for nonprofits leaders on the ins and outs of budgeting, including tips to get started and advice to navigate periods of change or uncertainty. Try the following:
- Six tips for getting through a crisis
- Tips for Creating/Running a Crisis-Response Team - The Management Center
- NFF 2018 Webinar Series - Our series of practical, one-hour webinars.
- NFF’s 2016 webinar on Financial Health & Social Good: Steering Nonprofits through Uncharted Waters.
Cash Flow Planning
Q: What is a cash flow projection and how is it different from an operating budget?
A: A cash flow projection is a financial representation of anticipated cash received and cash paid out, often on a monthly basis, but in dire circumstances can be done on a weekly basis. While an operating budget shows whether revenue earned will be greater than expenses accrued, the cash flow projection shows whether there will be enough cash on hand to actually pay bills at various points over the fiscal year.
- By developing a "visual landscape" of cash flowing in and out, there will be more certainty about whether and when cash will be available, or unavailable to meet future operating and balance sheet obligations when they arise.
- Projecting cash is an important exercise. It compares the cash you expect to receive with the bills you must pay each month.
Q: What do I need to build a cash flow projection?
A: The following will be helpful to collect prior to filling in your cash flow projection:
- NFF Cash flow template
- Current budget
- Beginning cash balance: How much cash is on hand at the beginning of the month? This is the ending cash balance in the previous month
- The anticipated flows of cash, list all
- cash-providing sources: cash income, collected receivables, net assets released
- Expenses requiring cash or payables paid off. Do NOT included depreciation expense.
- You will be required to make some assumptions about the timing and size of certain future cash receipts and cash spent. Use notes to keep track of your assumptions.
Q: Why can’t I just use revenue and expenses that I find in my budget and divide by 12 months?
A: Projecting expenses is often easier than projecting revenue. Often expenses are predictable and occur consistently. Not necessarily so for revenue. For example,
- “Cash received” is not always the same as revenue. For example, a pledge from a donor in the current fiscal year that has not yet been paid in cash will not be included as "cash received" until it is received. In fact, under the current circumstances, the pledge may not be received until the following fiscal year. On the flip side, take a look at all pledges from the previous year. Have they all been paid? If not Will they be collected in the current year? If so, this will included as "cash received."
- Likewise, “cash spent” is not always the same as an expense. For the same reasons above, you may receive a bill or invoice to be paid, most likely in 30 days. The receipt of the bill is when you accrue the expense, but the projected payment of the bill will be included in “cash spent.” In addition, do not divide your annual budgeted expenses by 12 months. Do an analysis to determine the frequency and timing of each expense category.
- During a crisis situation, plan out when you most likely will pay the expenses. Speak with creditors to get them to relax payment terms.
Q: Can I do scenario planning when using cash flow projections?
A: Cash flow projections often are a useful tool in scenario planning. Cash flow projections can be engaged in evaluating the impact of various scenarios. For instance, what if the grant arrives six months later than expected? You can create a few "Plan Bs" that suggest either (i) drawing down on a line of credit, (ii) drawing down on reserves, or (ii) discussing delaying the payment of certain bills with creditors. More specifically, cash flow projections help plan your response in terms of determining:
- How much cash to keep in reserves to access during months when cash is low
- Whether short-term debt (e.g., a line of credit) would be an appropriate funding source, and if so, how much?
- How much and when to draw down on reserves or line of credit
- Which creditors you may need to talk to and when
Q: What if I have to close down a program, event, store during COVID19, and I lose those fees, sales, etc.? Will the cash flow projection tool tell me how much I can borrow?
A: Be careful to distinguish between “gap in cash” issues vs “cash flow timing” issues. The cash flow projection tool can help illustrate the difference between
- “Cash flow timing” issues, which involve a temporary lack of cash due to seasonal timing of receipts or delays in payments (from contracts or grants)
- debt, particularly a line of credit, could be particularly helpful to cover cash expenses while waiting for the receipt in cash of a grant or contract.
- “Gap in cash” issues, which involve a loss of funding that produces a cash shortage with no predictable way of alleviating. "Gap in cash” issues are usually associated with an operating deficit - in other words, expenses exceed revenue whether in cash or other forms.
- Debt is rarely appropriate to plug this kind of gap.
- Instead, look for an emergency grant.
Q: Do you have any process recommendations for our board and me to consider when and how to make budgetary adjustments as the year goes on?
A: You most likely will have to reforecast your current budget. Reforecasting the budget periodically may be appropriate for some organizations, particularly those facing major unexpected changes during the year, and it’s an important exercise for the budget to remain a useful management tool. This process involves creating a separate, revised budget that uses year-to-date results as well as management's best estimate of the remaining months of the fiscal year. While creating an amended budget, formally reapproved by the board, is not commonly done, it may be warranted in times where the fiscal year is likely to end very differently than predicted in the original budget.
Q: How do I talk to my donors during this time of crisis?
A: While we are not fundraising experts, we know there are some strategies and suggestions that can be helpful:
- First, ask how your donors are doing
- Second, tell them, in clear terms, how your organization is responding to current events
- Be prepared to suggest nonfinancial ways in which they can help (offering other ways to help can strengthen your ties with donors who aren’t able to give right now)
- Celebrate and support the work of those on the front lines
- Talk about your nonprofit’s plans for recovery and resilience
- Be open and honest about finances
- Are you losing money? Are there delays in grant or contract payments?
- Do you have reserves? Are you tapping into them?
- Do you have an endowment that can’t be touched? Explain that too.
- Ask supporters to
- Share time and talent
- Convert tickets to performances or galas, event sponsorships into a charitable gift
- Convert endowed assets into unrestricted cash reserves
- Antony Bugg-Levine, NFF
- Six Steps for Grantmakers to Take Now - The Chronicle of Philanthropy
- A New Normal for Foundation Giving: 3 Acts That Will Make a Difference - The Chronicle of Philanthropy
- Chronicle of Philanthropy
- National Committee for Responsive Philanthropy
- My Favorite Funder Responses so far to COVID-19 Crisis (as of 3/18/20)