ARLINGTON HEIGHTS, Ill.—On March 27 an unprecedented $2.2 trillion economic stimulus package known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law. This act creates several broad-based financial assistance programs to help employees, businesses, and other organizations in light of the rapid economic interruption brought on by COVID-19 within the US.

We have been closely following this development even before it became law, and we carefully studied its final provisions to understand what it means for Regular Baptist churches. While the legislation is complex and has many components that will affect organizations and individuals, we want to highlight three main provisions for churches to focus on: the Paycheck Protection Program, the Employee Retention Credit, and the Economic Injury Disaster Loan.

Paycheck Protection Program

The Paycheck Protection Program provides loans to both small businesses and nonprofits, including churches, through the US Small Business Administration (SBA). These loans are forgivable to the extent they are used for eligible expenses, which means a large portion of them will essentially become grants for the organizations that receive them.

  • To be eligible for a loan, a church must have been harmed by the pandemic between February 15, 2020, and June 30, 2020. For nonprofits and churches, any disruption to operations or economic loss is considered to qualify them under this provision.
  • Borrowers must certify that (1) the loan is necessary due to uncertain economic conditions; (2) the funds will be used to retain employees and maintain payroll (including health care and retirement benefits) or pay certain core operating expenses including rent, mortgage interest, and utilities; and (3) the borrower is not currently receiving or applying for any similar benefit from the SBA.
  • The maximum loan amount is 2.5 times the organization’s average monthly payroll for 2019, including health care and retirement benefits. So, for example, if a church’s payroll costs totaled $120,000 in 2019, its monthly average would be $10,000 and its maximum loan would be $25,000.
  • Loans have a low interest rate of 1%, and initial payments are deferred for at least six and up to twelve months at the discretion of the SBA.
  • Loans are forgivable to the extent a church uses the funding to maintain payroll (including health care and retirement benefits) as well as certain core operating expenses during the eight weeks following the disbursement date. Eligible expenses include utilities, rent, and interest on mortgages or other debt obligations incurred before February 15, 2020. Note, however, that only 25% of a loan can be used for nonpayroll expenses and still be eligible for forgiveness.
  • Loan forgiveness will be reduced, however, if an organization’s workforce is reduced, whether by retaining fewer employees or reducing employees’ pay:
    • Loan forgiveness is reduced proportionally if the employer retains fewer employees in the applicable forgiveness period as compared to (1) February 15–June 30, 2019, or (2) January 1–February 29, 2020. The employer may choose the comparison period that is most favorable.
    • Loan forgiveness is also reduced dollar-for-dollar for any reduction in employee pay exceeding 25% compared to the last quarter of employment before the loan.
  • Any loan amount remaining after the forgiven portion must be repaid to the SBA within two years of the loan origination date.

To apply for a loan under the Paycheck Protection Program, employers will need to work with a bank that is registered with the SBA. Many local banks are already part of this program, and the SBA is planning to furnish a list of participating lenders on its website. Compared to a typical loan, the application and documentation requirements for this program are extremely simple. The application is short, and no collateral or personal guarantees are required. Banks will require that borrowers support their applications with appropriate documentation such as employer tax returns, health insurance invoices, and payroll records.

Since the law automatically recognizes churches as 501(c)(3) nonprofits without requiring certification from the IRS, there is no need to submit an IRS letter to a lender or to the SBA when applying for benefits. GARBC churches may obtain their group 501(c)(3) exemption documents by contacting us. If required, each church must submit their own individual Federal Tax ID (TIN or FEIN) number when applying. Do not submit the GARBC Tax ID number.

Employee Retention Credit

The Employee Retention Credit provides an immediate refundable tax against the employer’s share of payroll taxes.

  • To be eligible, a nonprofit must have experienced (1) a full or partial suspension of operations due to governmental order or (2) a loss of income exceeding 50%.
  • For each calendar quarter in which either of these events occurred, the credit is 50% of the first $10,000 in compensation (including health care costs) per employee.
  • If the employer experienced a loss of income exceeding 50% (compared to the same quarter of the prior year), the credit continues for each quarter until the employer’s income recovers to 80%.
  • If any credit amount exceeds the employer’s Social Security tax due, the difference can be refunded to the employer by the IRS.

Economic Injury Disaster Loan

A third financial assistance option is also available to churches. The Economic Injury Disaster Loan program is a loan and grant option for which the SBA is accepting applications directly. There is no need to work with a bank for this program, and the application can be completed in just a few minutes. There are two components to the EIDL program: (1) an immediate grant of up to $10,000 that does not need to be repaid and (2) a loan with different terms than the PPP loans. The benefits of the EIDL program include the following:

  • Funds can be immediately accessed directly from the SBA.
  • Up to $10,000 is guaranteed as a grant with no repayment requirement.
  • An Economic Injury Disaster loan can be rolled over into a PPP loan if an organization applies for both programs (i.e., getting an Economic Injury Disaster loan or grant does not disqualify an organization for the PPP program).

For further information and a list of qualifications, visit this SBA website.

Estimated-Benefits Calculator

It is important to note that an employer receiving loan forgiveness under the Paycheck Protection Program is ineligible to receive the Employee Retention Credit, and vice versa. Thus, churches interested in participating in these programs can calculate both potential benefits and select the one most appropriate for their circumstances. To assist with this, Regular Baptist Ministries is providing a spreadsheet-based calculator designed to help churches estimate their benefits under both programs. Download the calculator here. The blue tab calculates the Payroll Protection Loan benefit, and the green tab calculates the Employee Retention Credit.

Addressing Concerns

One of the biggest concerns we’ve heard about these programs is whether a church that uses them could sacrifice any part of its religious freedom or end up being subject to additional government oversight as a result of them. We are pleased that the SBA has issued a statement clarifying these concerns and reiterating that the programs were designed to maintain employment support for American people regardless of whether they are employed in ministry or secular business. This, along with the strong Constitutional protections already enjoyed by churches, gives us confidence that no church or organization needs to be concerned with consequences to its ecclesiastical polity as a result of these assistance programs.

For further assistance or questions, please contact us.

_________

Updates

APRIL 3: Late on April 2, the Small Business Administration released final regulations pertaining to the Paycheck Protection Program. We noted a clarification that payments to independent contractors by organizations and churches are not considered part of an organization’s “payroll costs,” since independent contractors themselves are eligible to apply for the program. We have updated our estimated-benefits calculator accordingly above.

APRIL 6: This article has been revised to include information about the Economic Injury Disaster Loan.

APRIL 7: This article has been revised to include the following updates:

  • Loans have a low interest rate of 1%.
  • Only 25% of a loan can be used for nonpayroll expenses and still be eligible for forgiveness.
  • Banks will require that borrowers support their applications with appropriate documentation such as employer tax returns, health insurance invoices, and payroll records.
  • Since the law automatically recognizes churches as 501(c)(3) nonprofits without requiring certification from the IRS, there is no need to submit an IRS letter to a lender or to the SBA when applying for benefits.
  • The SBA reiterates that the programs were designed to maintain employment support for American people regardless of whether they were employed in ministry or secular business.

Disclaimer: This memorandum does not address all details or potential benefits to churches and their employees under the CARES Act, and it was produced prior to the release of final SBA regulations. We expect continued updates in the coming days, and we recommend that our readers visit the SBA website for new developments.