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Loudoun County Attorneys > Blog > Church Law > How CARES Act Impacts Small Businesses, Churches, Nonprofits and Individuals

How CARES Act Impacts Small Businesses, Churches, Nonprofits and Individuals


By William R. Thetford, Esq. and H. Robert Showers, Esq.

Note: This is the subject of a rapidly evolving landscape. Please utilize this article for an overview of the Act and relevant programs and see our updates article for developments.

Businesses, nonprofits and churches have faced unprecedented levels of restrictions on travel, meeting, and commerce in an effort to limit the spread of the Coronavirus. This has led to many businesses, nonprofits, churches and even entire industries, to face severe economic peril and uncertainty. In an attempt to keep businesses and nonprofits from going under and individuals from drowning, Congress has passed several pieces of sweeping legislation including the Families First Coronavirus Response Act (FFCRA) summarized here. The most recent piece was finalized just last week: the $2.2 Trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  

Most of the media attention about this stimulus package has focused on the aspects impacting individuals. Countless articles and news sources over the past few days have repeated the refrain: “CARES Act: $1,200 for Every Individual.” However, there are important provisions in this 880-page Act that will impact small businesses, nonprofits, and churches as well. However, we would be remiss to not cover the individual assistance from the CARES Act first.

Provisions for Individuals and Families

The oft-touted payments will be in the form of a tax credit and an advanced tax refund. Under the provisions of the CARES Act, individuals making up to $75,000 (with tax liability of $1,200 or greater) will receive $1,200. For couples filing jointly, the rebate totals $2,400 for those making up to $150,000. Those without tax liability, or liability up to $1,200, will receive an amount between $600 and $1,200. Additionally, each qualifying child in the household of a single parent or couple will receive $500. However, this assistance begins to phase out for individuals making over $75,000 a year. For every $100 over $75,000, the rebate drops by $5. Thus, an individual making over $99,000 a year (or $198,000 for a couple filing jointly) would receive nothing. The information for determining a household’s eligibility comes from 2019 tax returns (filed 2020), if no 2019 tax return has yet been filed, the government will look to the 2018 return. If no tax return was filed for 2019 or 2018, the government will determine your eligibility based on Form SSA-1099: the Social Security Benefit Statement.[1]

The CARES Act makes a few lesser-known changes that will be significant for people in certain situations. For instance, unemployment compensation applications will be fast-tracked and more accessible for the next few months. In a change from recent stimulus bills, freelance and gig economy workers will get unemployment insurance. For up to four months, those eligible for unemployment insurance will get $600 per week.

Homeowners and renters also get some relief. Homeowners with federally backed mortgages will be protected from foreclosures for up to one hundred eighty days. Payments and interest on qualified federal student loans will be suspended until September 30, 2020. Finally, individuals with 401(k) savings can withdraw up to $100,000 penalty-free if necessary. Typically retirees, 70½ and over (recently increased to 72 beginning in 2020) are required to take a Required Minimum Distribution (RMD) from their retirement accounts. The Act now allows these RMDs to be waived or deferred for 2020. As a result, retirees who do not need to make a distribution now, will not be forced to make a distribution this year while the market is low due to coronavirus-related market fluctuations.[2]

Options for Small Businesses, Nonprofits, and likely Churches as well.

Small businesses, nonprofits and churches often operate on small budgets and small margins. With the drastic decrease in demand the last few weeks caused by the virus and the associated restrictions designed to slow its spread, small businesses, nonprofits and churches may be forced to lay off employees or even close up operations altogether unless alternative funding sources can be found. For instance, many daycares and childcare centers have been forced to close, except for children of essential personnel. Unlike grade schools K-12, colleges, and universities, online learning may not be an effective alternative for such programs and parents may not be willing to pay for them.

The CARES Act is designed to offer a series of programs to struggling small businesses and nonprofits. Of the $2.2 trillion designated for this bill, $349.4B is set aside for small businesses, nonprofits, and (as explained further below) likely churches. These funding opportunities are especially important in light of the new obligations employers have under the newly passed FFRCA programs: 1)the Emergency Family and Medical Leave Expansion Act (EFMLA) and 2) the Emergency Paid Sick Leave Act (EPSLA) (discussed here). Unlike the provisions for individuals, businesses and nonprofits seeking to utilize the CARES Act will have to decide among various programs and affirmatively apply for the relief.

These programs include

  1. The Paycheck Protection Program (PPP)
  2. Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants
  3. Employee Retention Payroll Tax Credit (for information on the related EPLSA tax credits program see prior article here)
  4. Small Business Debt Relief Program
  5. Counseling and Training

The first three of these programs are described in more detail below.

  1. Paycheck Protection Program – Forgivable Loans

The Paycheck Protection Program is an amendment to the Small Business Act 7(a) loan program (15 U.S.C. 636(a)) that offered loans to eligible small businesses and nonprofits. The PPP expands eligibility to new businesses and nonprofits, and it establishes a new path for loans which may be forgiven if certain requirements (designed to keep employees employed) are met. These loans will be made by banks and lenders that offer SBA 7(a) Loans ordinarily and the government will be responsible for forgiven or uncollected loan proceeds. This loan does not require a personal guarantee or any collateral. If you already have an existing EIDL you may be able to refinance your emergency loan into the new PPP by adding the existing sum to your 250% of payroll costs.

Who is eligible?  Businesses and entities in operation on February 15, 2020 including: small business concerns and business concerns, 501(c)(3) nonprofit organizations, and certain other types of entities with no more than 500 employees. Churches and related entities with 500 employees or fewer are likely eligible as well.  

What is the amount of the loan? The maximum loan amount is 250% of the applicant’s average payroll prior to obtaining the loan. The time period by which the average is calculated is the 12 months prior to receiving the loan with exceptions for seasonal businesses (which may use the period of February 15, 2019 through June 30, 2019 or March 1, 2019 to June 2019) or applicants that have been in existence less than 12 months. In any case loans are capped at $10,000,000 (up from a previous SBA loan cap of $350,000).

What are the repayment terms, interest rates, and fees? The interest rates are capped at 4%. Loan administrators will not be allowed to collect loan fees from the borrowers (the government will be paying lenders some fees). The maximum repayment term is 10 years. However, no loan payments will be due for six months to one year.

How can the funds be used? Funds can be used for payroll costs, health care benefits, employee salaries or other compensations, payment on mortgage interest, rent, utilities, and interest (not principal) on other debts incurred before the covered period. Act section 1102(F).

What are eligible payroll costs? The Act defines payroll costs to include: compensation (salary, wage, commission, or similar to employees or independent contractors); cash tip; payment for vacation, parental family medical, or sick leave; allowance for dismissal or separation; payment required for the provisions of group health care benefits, including insurance premiums, payment of retirement benefits; and payment of state or local tax assessed on compensation of employees. Whether ministry housing allowances are permitted as eligible payroll costs is unknown at this time but they should be factored into your overall payroll costs for the loan application until the SBA releases further guidance.

What is excluded from payroll costs? Payroll costs do not include compensation of an individual in excess of an annual salary of $100,000 prorated for the covered period; certain taxes (imposed or withheld under Chapters 21, 22, or 24 of the Internal Revenue Code); any compensation of an employee whose principal place of residence is outside the United States; qualified sick leave or family leave wages for which credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

What loans will be forgiven? Loan forgiveness is calculated in two stages.

  1. The base amount of loan forgiveness is equal to the sum of payroll costs + rent obligation or interest on any mortgage + utility payments during the eight weeks following the origination of the loan.

In other words, if your expenditures for the eligible costs above do not at least equal the amount you received in the PPP, the remaining portion of the PPP will not be forgiven. Predictably, the amount of loan forgiveness calculated in this stage will not exceed the amount of principal actually borrowed under the PPP.

  1. Importantly, for the second part of the calculation, the amount of loan forgiveness will be proportionally reduced if there are fewer full-time equivalent employees (FTE) during the “covered period” (February 15, 2020 and June 30 2020) compared to one of two periods chosen by the borrower: (A) February 15 through June 30, 2019 or (B) January 1, 2020 through February 29, 2020.

Note:  While the funding is calculated to provide the equivalent of approximately 10 weeks of your organization’s payroll (2.5 times monthly payroll), forgiveness is limited to the amount of loan you expend on qualified expenses over the course of the 8 weeks following loan origination. In other words, if you only spend the loan proceeds on payroll, it will last your organization ten weeks, but the last two weeks will not be forgivable. Thus, for the loan to be 100% forgivable, the authors of the bill are assuming that you will use the proceeds for payroll and other qualified expenses like rent, mortgage interest, and utilities during the first 8 weeks.  

Example 1: Full loan forgiveness. An employer maintains the same payroll costs (compensation, benefits, etc. for its employees) plus mortgage, rent, and utilities, as it did in the past and the same number of average FTE. The loan can be completely forgiven.

Example 2: The loan may still be subject to full forgiveness if any wage or FTE reductions occurred between February 15, 2020 and within 30 days of the enactment of the CARES Act, and were corrected before by June 30, 2020. For instance, if the employer has 20 FTE before February 15, 2020, lays off employees and sharply reduces pay in late February, but then quickly re-hires employees and makes pay equivalent to pre-February 15, 2020 levels, the employer will still likely receive 100% loan forgiveness.

Example 3: Proportional forgiveness. The loan will be proportionally forgiven if fewer employees are retained through the covered period. An employer employs 20 full time equivalent employees between February 15 and June 30, 2019. In 2020, (whether because of Coronavirus economic slowdown or not) two full-time employees are replaced by two part-time employees (working exactly half of full-time hours) and 1 other full-time employee leaves or is laid off and is not replaced. As a result, during the period of February 15, 2020 through June 30, 2020, the employer only maintains 18 full-time equivalent employees. The employer can have 90% of the loan forgiven. The rest will need to be repaid over 10 years at up to 4% interest.

Impact of loan forgiveness. Forgiven loan amounts will not be taxable as gross income.  

How to apply for the PPP loan? Before receiving the loan, the borrower will have to certify that the proceeds will be used for eligible purposes (described above). At the time of writing, the SBA is providing loan guidelines to the banks and the banks will prepare their own loan application process. Applications are not yet ready. However, there are several action steps you can take now to streamline the application process when it does open:

  1. Locate Potential Lenders
    1. Start with the bank or lenders you already have a relationship with and ask if they will be participating in the PPP program under the SBA.
    2. If you need to locate a new bank or lender you can inquire with the banks on the SBA’s list of 100 most active lenders.
  1. Ask the bank about its procedures for loan applications. These procedures will be a combination of requirements from the SBA and the bank’s own requirements. Though the rules and procedures are still being established for the PPP loans, they will likely be similar to procedures for existing SBA 7(a) loans. It appears that both National and local banks will be participating.
  1. Prepare your documents. The information required in the application is not yet known, but it will likely include the following.
    1. Small businesses will need to supply documents showing your existence and good standing with your state. In Virginia these are available on the State Corporation Commission’s website. In Maryland, these documents may be searched here. Many other states have similar tools. Nonprofits will also likely need these or similar documents.
    2. Nonprofits will also need documentation to establish your nonprofit status and eligibility. Gather a copy of your IRS Determination Letter and your last filed IRS Form 990. Churches that do not have these documents may also be eligible, but you may have a somewhat more difficult time proving your nonprofit status and eligibility. Be creative and consider contacting legal counsel in assembling the appropriate documentation and explanation. Your certificate of incorporation and maybe articles of incorporation and bylaws may also be useful if your church is incorporated.
    3. Payroll information for the last 12 months, P&L statements and other financial information as the bank may request.
  1. Payroll Calculations
    1. Gather your payroll information for 2019 and you can begin to make the calculations of eligible payroll expenses for which to calculate your maximum loan amount (250% of your average monthly payroll in the 12 months prior to the loan, with some exceptions). See above for eligible and ineligible payroll costs.
    2. Determine the loan amount that you would like to request, up to the maximum which you calculated above. SimmsShowers can make a loan calculator available to help you determine or at least estimate your amounts.

How to apply for loan forgiveness? Apply to your lender and document the number of full-time equivalent employees on payroll and employees for February 15, 2020 through June 30, 2020 compared to the comparator time period chosen by the lender as described above. The lender has 60 days to review the application and issue a decision.

Can this program be utilized with others? You can receive a EIDL in addition to a PPP as long as the EIDL is or was sought for funding liabilities other than those covered by the PPP forgivable loan. If you use PPP funding to pay interest on an EIDL you received after the beginning of the covered period, that portion of your PPP loan will not be forgiven. 

It is clear that an entity may not both utilize a PPP and the payroll tax credits provided under the CARES Act. It is unclear whether receiving tax credits for paying mandatory leave under the FFCRA will impact eligibility for seeking a PPP. Likely, entities may both receive the FFCRA credits (but not the expanded CARES Act credits) and also receive a PPP. However, because the costs associated with FFCRA leave are not “eligible payroll costs” they must not be included in your application for the PPP loan and to the extent that you use PPP funds to pay these FFCRA leave costs, that portion of the loan will not be forgiven.

Key point: Your organization should review the PPP and tax credits options and determine which route is best for the organization. In many cases, this will likely be the PPP. After you determine which part of the aid program is most important to pursue, you can begin to assess what other relief is allowed to accompany what you deem to be your greatest need.  

 Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants

A second method of funding comes from the EIDL program. Unlike the PPP, these loans are made directly by the SBA. The maximum loan size is $2 million. Applicants for an EIDL may also request an advance of up to $10,000 from the SBA which will be distributed within 3 days. Applicants are not required to repay this advance, even if they are denied the EIDL. A personal guarantee is required for loans of greater than $200,000. Collateral may also be required in the form of a UCC lien against the assets of the business.

Who is eligible?  Businesses, Tax exempt (501c3) nonprofits, sole proprietorships, cooperatives, and tribal small business concern that (a) have 500 employees or less and (b) were in operation on January 31, 2020. Churches and many religious nonprofits will not be eligible for the EIDL or grant since “a recipient that is principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting, or primarily engaged in political or lobbying activities is not eligible to receive an EIDL”.

What is the amount of the loan? Up to $2,000,000.

What are the repayment terms, interest rates, and fees? Up to a 30-year repayment term. Interest rates are 3.75% for businesses and 2.75 percent for non-profits. The first payment may be deferred for 1 year.

How can the funds be used? Grant and loan proceeds may be used for broader purposes than PPP forgivable loans. Allowable purposes include: providing paid sick leave to employees due to direct effects of COVID-19, maintaining payroll to retain employees during disruptions, meeting increased costs because of supply chain interruptions, making rent or mortgage payments; repaying obligations that cannot be met due to revenue losses.

How to apply for the loan? The application process is already open. There is no obligation to accept a loan if you qualify. The application process takes approximately 2-3 weeks plus 5 additional days for funding.

Is there a loan forgiveness program? No. Except that the $10,000 advance or grant does not have to be repaid.

What advantage does the EIDL have over the PPP? In theory the EIDL is for “emergency” situations to keep a business afloat. The program attempts to get resources to the recipients quickly (the $10,000 grants within three days), however, because the grants are centrally administered by the SBA and the high the volume of applicants, at the time of publishing we understand there is a significant backlog and delays. In short, at least at present, the PPP may be the better option for many small business or nonprofits but the $10,000 EID grant should be closely reviewed since it will be quick and forgivable but it will be deducted from whatever you receive in the PPP loan. It appears that you can apply for both the EIDL and PPP and choose which to accept if you are approved by both.

Employee Retention Payroll Tax Credit

A third form of aid comes in the form of tax reductions, rather than direct payments or loans. Eligible employers are allowed a credit against employment taxes which is calculated at 50% of the qualified wages of each employee for that calendar quarter. Under some circumstances, for which additional guidance is expected, employers can even receive tax credits in advance.

Eligible Employer: Any employer (businesses or nonprofits) impacted by suspensions in business or trade due to government orders limiting commerce, travel, or group meetings due to the coronavirus. This credit is also available to employers who demonstrate a 50% or greater reduction in in quarterly income compared to 2019.

Eligible wages: For employers with more than 100 employees, only the wages of furloughed employees are eligible. For employers with 100 employees or less, all wages are eligible. Qualified wages include actual compensation as well as health benefits. Wages do not include those already considered for payroll credits under other acts such as the FFCRA. 

Cap per employee: Qualified wages are capped at $10,000 per employee for all calendar quarters. In no case can the credit exceed the applicable employment taxes. Accordingly, this credit will be worth a maximum of $5000 per employee.

Deferral: Employers may defer payment on the employer portion of payroll taxes through the end of 2020, giving the employer an opportunity to recalculate payroll taxes in accordance with the credits.

Exclusions: This credit and the deferral is not available to employers receiving assistance through the Paycheck Protection Program. It is unclear whether the similar tax credits in the FFCRA will impact eligibility for the PPP or vice versa. Further agency guidance may be forthcoming.

A Word of Caution – Apply Early As Loans Will be Funded First Come First Served

We anticipate that the Small Business Administration, responsible for handling many of these programs, will be swamped with applications. Nearly $350 billion dollars is provided through these programs, however, even that large amount will not last long in the face of applications from the 30.2 million small businesses, 1.56 million nonprofits, and over 300,000 churches in the United States.[3]

If each of the small businesses were to apply for funding under the PPP, each would only receive $11,666, without accounting for any of the churches or nonprofits. However, because the average loan size is expected to be much higher than that (capped at $10 million) the $350,000,0000 will likely be exhausted before all the businesses, nonprofits, and churches that need it will have their applications submitted and approved. Commentators believe that it may take $3-5 trillion, not just $350 billion, to fund each of the entities that will seek it.

In short, if you need this financial assistance from the COVID-19 downturn, which most do, you will need to act fast. Plus, in most cases with the PPP and EID grants, they are forgivable so it is “free money” to help keep the business, nonprofit and church afloat during the next few months.

Are Churches Eligible?

Churches are likely eligible for the PPP and many of the other programs as long as the church has 500 employees or less. Though the word “church” is not included anywhere in the CARES Act, churches appear to fall under the Act’s definition of “nonprofit organization” which is “an organization described in section 501(c)(3)” and “exempt from taxation.”

Incorporated churches with formal 501(c)(3) letters through their affiliated denominations would clearly be eligible (group exemptions and recognized by the state as nonprofit entities). Churches, even without filing for a formal 501(c)(3) certification from the IRS, are automatically exempt under 501(c)(3), and thus, should be eligible. Whether the church must be formally recognized as a legal entity by a government entity, like church incorporation, is unknown at present but hopefully will not be required. Several Congressmen have indicated that they believe churches are eligible and are seeking formal agency guidance from U.S. Treasury Secretary to confirm that churches are eligible under the PPP and other CARES Act programs. As a practical matter, the SBA and other loan administrators may have a more difficult time processing the applications of churches that have not been formally incorporated or sought a 501(c)(3) determination.

As previously mentioned, churches and religious nonprofits are not eligible for Economic Injury Disaster Loans and Grants as such loans are not made to recipients “principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs, whether in a religious or secular setting, or primarily engaged in political or lobbying activities.”[4]

Another section of the act may impact donations made to churches and nonprofits, in that donors will be allowed tax-deductibility of donations for up to $300, whether or not donors itemize. This should encourage giving to churches and nonprofits and assist in providing for ministers, who are exempt from provisions of the Acts.


As the CARES Act is sweeping, lengthy, and very new, there are many items that will require interpretation from the Agencies administering these programs. More information, and likely more wrinkles, will likely continue to arise in the coming weeks. Please contact us with specific questions for your organizations since the answers may differ for each circumstance and organization.  Stay tuned for further updates as they become available.


Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum. We greatly appreciate the contributions to this article by Josiah Aden, SimmsShowers Legal Assistant. Please contact Robert Showers at hrs@simmsshowerslaw.com  or Will Thetford at wrt@simmsshowerslaw.com  or call at 703.771.4671 for legal advice that will meet your specific needs.

[1] Watson, Garrett, et al. “Congress Approves Economic Relief Plan for Individuals and Businesses.” https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/. Tax Foundation, Mar. 27, 2020.

[2] Max, Sarah. “The Cares Act Will Allow People to Use Their 401(k) Savings Penalty-Free and Defer RMDs.” https://www.barrons.com/articles/the-cares-act-will-allow-people-to-use-their-401-k-savings-penalty-free-and-defer-rmds-51585237324. Barron’s. Mar. 27, 2020.

[3] 2018 Small Business Profile, U.S. Small Business Administration, Office of Advocacy,  https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf; McKeever, Brice, S., The Nonprofit Sector in Brief 2018: Public Charities, Giving, and Volunteering (Nov. 2018), https://nccs.urban.org/publication/nonprofit-sector-brief-2018; Hartford Institute for Religion Research http://hirr.hartsem.edu/research/fastfacts/fast_facts.html#numcong

[4] Small Business Owner’s Guide to the CARES Act, Senate Summary of the CARES Act https://www.menendez.senate.gov/imo/media/doc/Menendez%20Small%20Business%20Owners%20Guide%20to%20the%20CARES%20Act.pdf

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