The Coronavirus Aid, Relief and Economic Security Act (CARES Act) allocates nearly $350 billion to a new lending program through the Small Business Administration (SBA), aimed at helping employers cover their payrolls during the coronavirus (COVID-19) pandemic. The loans under the Paycheck Protection Program (PPP) are subject to 100% forgiveness if certain criteria are satisfied, and neither the government nor lenders will impose fees.

The program is open to virtually every U.S. small business — including sole proprietors, self-employed individuals, independent contractors and nonprofits — affected by COVID-19. It’s available through June 30, 2020, but on a “first-come, first-served” basis. The U.S. Treasury Department is urging businesses to apply promptly.

Eligible borrowers

The PPP generally is available to small organizations with fewer than 500 employees. The term “employees” includes full-time, part-time and any other status workers.

For businesses in the accommodation and food services sector, the 500-employee threshold is applied on a per physical location basis. The SBA’s normal affiliation rules also don’t apply to companies that receive financial assistance from an SBA-licensed Small Business Investment Company or certain franchises.

Loan requirements

The SBA is waiving its usual requirements for loans. Businesses need not provide personal guarantees or collateral — or demonstrate the inability to obtain some or all of the loan funds from other sources (also known as the Credit Elsewhere requirement).

Instead, borrowers must certify in good faith all of the following:

• They were operating on February 15, 2020, and had employees for whom they paid salaries and payroll taxes or paid independent contractors, as reported on Form 1099-MISC,
• Current economic uncertainty makes the loan necessary to continue ongoing operations,
• The funds will be used to retain workers and maintain payroll, or to make mortgage interest, rent and utility payments for eight weeks (75% of loan proceeds must be used for payroll costs),
• They don’t have, and won’t receive, another loan under the PPP, and
• The number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments and covered rent payments and utilities.

Independent contractors, sole proprietors and self-employed individuals must provide additional documentation, such as payroll processor records, payroll tax filings, Form 1099s and, for sole proprietors, income and expenses.

Note that, in the days leading up to the opening of the application process, some banks expressed concern that a lack of guidance could result in significant delays in issuing loans. The Treasury Department didn’t release its interim final rule until the evening before the program began accepting applications, so lags in funding may occur.

Loan amounts and terms

Eligible businesses can obtain loans for 2 1/2 months of their average monthly payroll costs plus the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020 (less the amount of any advance under an EIDL COVID-19 loan, which doesn’t have to be repaid). Seasonal or new businesses will use different applicable time periods for the calculation.

Loans are subject to a $10 million cap. Payroll costs are limited to $100,000 annualized for each employee; amounts above that must be excluded from the calculation. Independent contractors who have the ability to apply for a PPP loan on their own don’t count for purposes of a borrower’s payroll.

Payroll costs include compensation, cash tips, severance, employee benefits (including leave), and state and local taxes on compensation. For sole proprietors, independent contractors and self-employed individuals, payroll includes wages, commissions, income and net earnings from self-employment.

Payroll excludes payroll and income taxes and compensation paid to employees who don’t live in the United States. It also doesn’t include qualified sick or family leave wages paid under the recent Families First Coronavirus Response Act.

The loans carry a fixed interest rate of only 1% and, although the CARES Act provided for terms of up to 10 years, will run for two years. All payments are deferred for six months, but interest will continue to accrue. Borrowers can pre-pay without penalties or fees.

Loan forgiveness

Businesses can qualify for loan forgiveness for amounts used for payroll costs, mortgage interest, and rent and utility payments over the eight weeks after receiving the loan. While the CARES Act provides that a borrower can spend up to 50% of loan proceeds on nonpayroll costs and still qualify for forgiveness, the final regulations indicate that no more than 25% of the loan proceeds can be used for such costs and benefit from forgiveness.

Borrowers also must maintain staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by more than 25% for any employee who made less than $100,000 annualized in 2019. Businesses will have until June 30, 2020, to restore full-time employment and salary levels from reductions made between February 15, 2020, and April 26, 2020.

Businesses can submit a request for forgiveness to their lenders. Requests must include documents verifying the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations. Lenders must make forgiveness decisions within 60 days.

Act now!

The application process for eligible small businesses and sole proprietors began April 3, 2020, and independent contractors and self-employed individuals can begin to apply on April 10, 2020. Businesses might be able to expedite the process by seeking loans from financial institutions where they have existing lending relationships. Contact us for additional information.

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Real-Time Strategic Planning (RTSP) offers not-for-profits a fluid approach to identifying, understanding and acting on challenges and opportunities to advance their missions. Is this process right for your organization? Let’s take a look.

What is it, exactly?

RTSP was first introduced by nonprofit consultant David La Piana as “a coordinated set of actions designed to create and sustain a competitive advantage in achieving a nonprofit’s mission.” A successful nonprofit plan requires three levels of strategy: organizational, programmatic and operational, using these building blocks of strategy formation:

1. Understand your identity. Ask the following: What is your organization’s mission and impact? What do you do (programs and services), where (geographic scope) and for whom (constituents, clients or customers)? And how do you pay for it?

2. Identify your competitive advantage. What strengths do you leverage to differentiate your organization from others and compete effectively for resources and clients? This step requires analyzing other organizations in the same geographic area that offer similar programs, to similar constituents, with similar funding sources.

3. Know how you’ll make decisions. Develop a “strategy screen” composed of the criteria you’ll use to choose courses of actions. A strategy screen might consider, for example, if an option advances your mission and enhances your competitive advantage. It also considers if you have the capacity to carry out and pay for the option.

4. Define the right strategic questions. Many questions naturally arise when presented with an opportunity, but they aren’t all strategic. Identify the strategic questions that must be answered now and sort operational questions (for example, “Will we be able to hire more employees to execute our plan?”) from strategic questions (“What are the implications for our mission?”).

What about “competitive advantage?”

One of the most important components of RTSP is competitive advantage. In general, competitive advantage is the ability to advance your mission by 1) using a unique asset — or strength — no competitor in your area possesses, or 2) having outstanding execution of programs or services. Your competitive advantage must be something clients and funders value, for example:

• Accessible locations or specialized property that enhances program delivery,
• A robust, diversified funding base,
• Great name recognition and reputation, and
• Powerful partnerships and a well-connected board of directors.

To make comparative judgments, of course, you need to identify and understand your competitors and their strengths. “Competitor” in this context isn’t necessarily a negative term. Your competitors often are organizations you collaborate with. Nonetheless, you’re also likely competing for donors, media coverage, board members, employees, volunteers or clients.

Continuing process

Nonprofits that implement RTSP have the tools to align their daily actions with their organization’s overall strategy and can work toward having a clear vision of their long-term direction. Contact us for more information.

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To help mitigate the financial and health crises related to the coronavirus (COVID-19), on Friday, March 27, 2020, President Trump signed into law the largest economic relief package in modern U.S. history. The $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is intended to shore up the country on multiple fronts and includes several components aimed at individuals.

Recovery rebates

One of the aspects receiving the most attention is the CARES Act’s so-called “recovery rebates.” The federal government will generally make direct payments of up to $1,200 to those who file their federal income tax returns as single filers or heads of households; married couples filing jointly can receive up to $2,400. Additional $500 payments will generally be made per qualifying child.

The nontaxable rebates are subject to phaseouts based on adjusted gross income (AGI) as reported on taxpayers’ federal 2019 income tax returns. If 2019 returns haven’t been filed, the 2018 tax returns will be used. The phaseouts begin at $75,000 for singles, $112,500 for heads of household and $150,000 for married couples. Payments are completely phased-out for single filers with AGIs exceeding $99,000 and for joint filers with no qualifying children and AGIs exceeding $198,000. For a head of household with one child, the payment is completely phased out when AGI exceeds $146,500.

Expanded unemployment benefits

The CARES Act increases unemployment compensation benefits significantly, providing an extra $600 per week for up to four months, over and above state unemployment benefits. The expansion generally applies to those who can’t work as a direct result of COVID-19.

The law generally provides temporary full federal funding of the first week of unemployment benefits through December 31, 2020, for states that opt to pay recipients as soon as they become unemployed, rather than requiring a one-week waiting period. And it provides an additional 13 weeks of unemployment benefits through year end, generally for those who remain unemployed after state unemployment benefits are no longer available.

The law also creates a temporary Pandemic Unemployment Assistance program through the end of the year. The program generally will extend unemployment benefits to workers who traditionally don’t qualify for them — meaning self-employed individuals, independent contractors, those with limited work histories and others.

Penalty-free early retirement distributions

The CARES Act waives the 10% early distribution penalty for COVID-19-related withdrawals from IRAs, 401(k) plans and certain other retirement plans made on or after January 1, 2020, and through December 31, 2020. The waiver applies to distributions made to an individual:

• Who’s diagnosed with COVID-19,
• Whose spouse or dependent is diagnosed with COVID-19, or
• Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care because of COVID-19, or the closing or a reduction of hours of a business owned by the individual due to COVID-19.

Eligible individuals can withdraw up to $100,000 penalty-free. They can repay withdrawn funds within three years of the day after the distribution without regard to the applicable cap on annual contributions. To the extent such early distributions aren’t repaid within this period, the related income tax will be prorated over three years.

Waived required minimum distribution rules

The CARES Act similarly waives the required minimum distribution (RMD) rules for certain defined contribution plans and IRAs for calendar year 2020. This will help individuals avoid a financially imprudent sale of retirement assets during the stock market downturn.

The waiver covers both 2019 RMDs required to be taken by April 1, 2020, and RMDs required for 2020. It applies for calendar years beginning after December 31, 2019.

Expanded charitable contribution deductions

Individual taxpayers can take advantage of a new above-the-line $300 deduction for cash contributions to qualified charities in 2020. “Above-the-line” means the deduction reduces AGI and is available to taxpayers regardless of whether they itemize deductions.

The CARES Act also loosens the limitation on charitable deductions for cash contributions made to public charities in 2020, boosting it from 60% to 100% of AGI.

Student loan relief

Under the CARES Act, employers can provide up to $5,250 annually toward employee student loan payments on a tax-free basis before January 1, 2021. The payment can be made to the employee or the lender. (The employee can’t take a student loan interest deduction for any loan payment for which the exclusion is available.)

The law also allows individuals to stop making payments on federal student loans through September 30, 2020, without incurring penalties or late fees. In addition, no interest will accrue on federal student loans during this period. And the government is temporarily suspending garnishments to collect on federal student loans.

Mortgage and foreclosure relief

Homeowners with federally backed mortgages can request forbearance, regardless of their delinquency status and without incurring penalties, fees or interest. Eligible homeowners must submit a request to their loan servicers and affirm financial hardship during the COVID-19 emergency. A servicer is required to grant forbearance for up to 180 days and to extend it for an additional period of up to 180 days at the borrower’s request.

Further, except for vacant or abandoned property, servicers of federally backed mortgages can’t initiate any foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for at least 60 days, starting March 18, 2020.

Borrowers with federally backed mortgages on multifamily properties can request a forbearance for up to 30 days if they were current on their loans on February. 1, 2020. They also can request two additional 30-day extensions.

The swiftly changing environment

No one knows when the COVID-19 public health emergency will end, or for how long the economic repercussions will linger. We’ll keep you informed on the latest developments and help you plan for a more stable financial future.

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Does your not-for-profit organization have a conflict-of-interest policy in place? Do your board members, trustees and key employees understand how the policy affects them? If you answer “no” to either (or both) of these questions, you have some work to do.

A duty

Nonprofit board officers, directors, trustees and key employees all must avoid conflicts of interest because it’s their duty to do so. Any direct or indirect financial interest in a transaction or arrangement that might benefit one of these individuals personally could result in bad publicity, the loss of donor and public support, and even the revocation of your organization’s tax-exempt status.

This is why nonprofits are required to have a written conflict-of-interest policy. To stress the importance of this requirement, the IRS asks tax-exempt organizations to acknowledge the existence of a policy on their annual Form 990s.

Define and provide procedures

In general, conflict-of-interest policies should define all potential conflicts and provide procedures for avoiding or dealing with them. For example, to prevent a board member from steering a contract to his or her own company, you might mandate that all projects are to be put out for bid, with identical specifications, to multiple vendors.

It’s critical to outline the steps you’ll take if a possible conflict of interest arises. For instance, board members with potential conflicts might be asked to present facts to the rest of the board, and then remove themselves from any further discussion of the issue. The board should keep minutes of the meetings where the conflict is discussed. You should note the members present, as well as how they vote, and indicate the final decision reached.

Making it effective

As with any policy, conflict-of-interest policies are only effective if they’re properly communicated and understood. Require board officers, directors, trustees and key employees to annually pledge to disclose interests, relationships and financial holdings that could result in a conflict of interest. Also make sure they know that they’re obliged to speak up if issues arise that could pose a possible conflict.

For help crafting a thorough policy, contact us.

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