By Craig Gipson and Brian Flagler

The time to act is now. ECPA members in need of funds to weather the COVID-19 slowdown have a short time in which to take advantage of government grants and low-interest loans. The Senate passed a $484 billion relief package on Tuesday to replenish loans for distressed small businesses. The House is expected to pass the measure on Thursday and the President has indicated he will sign the bill. But once the funds become available, they will not last long and those who prepare this week will be in the best position to help their organizations.

What Funds Are Available?

The relief package is part of the $2.2 trillion CARES Act signed into law in March to cushion the economic blow of the COVID-19 pandemic. This is a second round of funding by Congress after businesses exhausted the initial $349 billion in about two weeks. Some ECPA members applied during the first wave with varying experiences: some received approval and funds quickly, some encountered difficulties in the application process, and others completed their applications only to see the funds exhausted before their loans were approved.

There are two forms of Small Business Administration (SBA) aid which may apply to your organization: Payroll Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDL) grants/loans (EIDL loans are generally available to businesses following a natural disaster but the CARES Act loosened the relevant restrictions). Under the newly-passed Senate version of the bill, the PPP will receive an additional $310 billion and EIDL funding will see another $50 billion.

The loan forgiveness and full SBA guaranty aspects of the PPP loans are particularly appealing. As described more fully in this update from our colleagues at Bird, Loechl, Brittan & McCants, the principal amount of a PPP loan will be forgiven if spent on: (i) documented payroll costs, with forgiveness subject to reduction if employee salaries or wages are reduced above a certain threshold; and (ii) rent, mortgage interest, or covered utilities, provided spending on these categories does not exceed one quarter of the loan principal. PPP loans are also fully guaranteed by the SBA so that no collateral or personal guarantees are required.

Most ECPA members are eligible for at least one type of SBA loan. The attached summary will help you confirm eligibility, compute the amount your organization may request, and determine the amount of the loan that may be forgiven. The two types of loans are not necessarily mutually exclusive so it is important to work with your organization’s CPA to determine the type and amount to pursue, as well as navigate the application process.

How Do We Apply?

Any SBA-approved lender may facilitate your organization’s application but we recommend first utilizing existing banking relationships to apply as soon as possible. SBA regulations direct banks to process applications on a first-come-first-serve basis, so providing your bank with the necessary application information before this next round of funds become available will place your organization closer to the front of the line.

But beware. The number of applications in early April overwhelmed many banks and some placed restrictions on applicants: only customers with existing credit accounts or business checking accounts were common requirements (although some banks backtracked on these after a public relations backlash). Still, many banks indicated they could not even process their customer’s applications, much less begin the process with new customers.

If your existing bank is inundated with applications or indicates it cannot process your application quickly, or if your bank is a large national institution and has not yet approved your application, consider starting the process with an SBA-approved regional bank. The Senate bill passed Tuesday set aside $60 billion of the PPP funds for smaller lenders.
Applicants may not receive more than one PPP loan and at least one SBA representative has cautioned against filing an application with more than one lender (some will not process your application if one is pending elsewhere). However, if the SBA has not approved your loan with your current lender, consider whether another lender may be able to process your application more expeditiously.

A further cautionary note: SBA loans typically impose expanded non-discrimination obligations on the borrower, even if they would not otherwise apply (e.g. because the borrower has less than 50 employees). The SBA loan applications under the CARES Act require a certification of non-discrimination. At the request of religious organizations, interim regulations issued by the SBA seek to assure religious organizations that their otherwise applicable religious exemptions will allow them to continue to limit employment and membership to their religious adherents. And, the non-discrimination obligations terminate once the loan is repaid in full or forgiven. However, since we do not yet have full clarity from the SBA regarding the scope of the exemptions for religious organizations, our colleague Stu Lark with Sherman & Howard recommends that religious organizations applying for these SBS programs clarify in the application that your certification is based on your interpretation that the SBA civil rights regulations add nothing to general civil rights laws that otherwise lawfully apply.

ECPA will continue to monitor SBA programs that may benefit its members but emphasizes again that if your organization is considering an SBA loan, it should immediately begin working with its CPA and lender on an application.

This article is provided for informational purposes and is not intended as legal advice. This article was first published as an ECPA Legal Update.