Federal loans from the Small Business Administration (SBA) were not an option for nonprofit organizations before the CARES Act. Under the CARES Act, however, 501(c)(3) and 501(c)(19) nonprofits (as well as certain nonprofit hospitals) became eligible to obtain Paycheck Protection Program (PPP) loans. 501(c)(6) organizations, however, remained ineligible (see SBA Part Five). Under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (what we're calling "PPP 2.0"), PPP access has been expanded to include 501(c)(6) organizations. PPP 2.0 also provides for second-draw loans for some nonprofit organizations that previously received a PPP loan (see SBA Part Thirty-One).
Generally, the eligibility requirements for PPP 2.0 loans to nonprofits are the same as the requirements for other entities (see SBA Part Thirty-Three), with a few differences:
- For a 501(c)(6) organization to be eligible, lobbying must not comprise more than 15% of the total activities of the organization, the organization must have 300 or fewer employees, the organization may receive no more than 15% of its receipts from lobbying activities, and the organization must have spent less than $1 million in the most recent tax year on lobbying activities.
- For second-draw loans, the eligibility requirement relating to gross receipts of nonprofits is the same as for other second-draw loan applicants (see SBA Part Thirty-Three), but "gross receipts" for nonprofits is defined with reference to Internal Revenue Code Section 6033, which defines gross receipts to include all items of income without reduction for costs or expenses. This means fundraising revenue would not be reduced by direct fundraising expenses, for example, and rental income would not be reduced by rent expense.
- The religious exemption to the affiliation rules, which was not included in the CARES Act but was the subject of SBA rulemaking under the original PPP, has now been codified into law. The exemption states that the relationship of a faith-based organization to another organization is not considered an affiliation with the other organization if the relationship is based on religious teaching or belief or otherwise constitutes a part of the exercise of religion. For example, if a faith-based organization is affiliated with another organization because of religious beliefs about church authority or internal constitution, or because the legal, financial, or other structural relationships between the organizations reflect an expression of such beliefs, the faith-based organization would qualify for the exemption. If, however, a faith-based organization is affiliated with other organizations solely for non-religious reasons, such as administrative convenience, then the organization would be subject to the affiliation rules.
- Nonprofits should also be aware of how PPP 2.0 interacts with other aid programs. Entities that receive grants under the Shuttered Venue Operators Grant program are not eligible to receive PPP 2.0 loans. However, entities that receive the employee tax retention credit may now also receive a PPP loan. This change is retroactive.
Furthermore, all nonprofit organizations that received $2 million or more in PPP funds (aggregated) are required to complete Form 3510, which is designed to allow the SBA to evaluate loan necessity.