New Federal Law Provides Forgivable Loans to Ease Financial Strain
But Comes with Caveats
Your school may want to participate in a provision of the recently passed federal CARES Act, which provides forgivable loans to cover payroll so you can keep your staff working.
The law’s Paycheck Protection Program (PPP) is administered through the U.S. government’s Small Business Administration (SBA). The U.S. Treasury provides more information about the PPP and how it works.
Key Things to Know
Non-profit 501(c)(3) organizations, such as private K-12 schools, can apply for the PPP starting now.
Apply by talking to your local banker. The banker (your lender) can file applications beginning Friday April 3, 2020. The application period ends June 30, 2020.
The Treasury recommends people apply sooner rather than later because the program is capped.
A SAMPLE 2-page application PPP form gives an idea of the information needed. But, it’s just a sample and should not be used to apply. Talk to your banker first.
The SBA will forgive the loan if all employees are kept on the payroll for 8 weeks and the money is used for payroll, rent, mortgage interest, or utilities. Forgiveness is based on maintaining employees and salary levels.
Remember, the SBA is still writing rules for the program and things could change. But, at this point, the loans have a maturity of 2 years and an interest rate of 1%. There is no collateral required. There are no fees.
How to Proceed
- Call your school’s banker or credit union and ask if they are participating in the Paycheck Protection Program through the US Small Business Administration (SBA). If not, can they recommend another banker they trust who is participating?
- Read the link above and this information about the PPP and invite your pastor, or oversight board members to do the same.
- Contact your school attorney and accountant to talk about the ramifications of participating, and getting help needed to assemble the information needed to apply.
- Work with your banker and accountant to complete the forms and necessary documentation. Talk with them about post-loan paperwork that you’ll need to get the loans forgiven.
Caveats on the PPP
State Issues
Under current Parental Choice Program regulations, any federal loan forgiveness is considered grant income, which reduces eligible costs in the cost per student calculation for a voucher.
However, the Department of Public Instruction will waive the administrative rule creating accounting problems for voucher schools receiving funds under the federal Paycheck Protection Program (PPP).
In an e-mail to nonpublic school advocates late Friday (4/24) DPI Assistant State Superintendent Bob Soldner wrote:
“For 2019-20, DPI will publish a waiver that waives the application of PI 48.10(3)(a)2. to the extent the subdivision applies to any funds received under the Paycheck Protection Program.”
Federal Issues
WCRIS’s advocate in Washington, the Council for American Private Education (CAPE) shared the following FAQ guidance from the SBA:
The guidance (released 4/30/20 at 10:39 p.m.) is important because it states that the use of these loans will lead to status as a recipient of “federal financial assistance” and its accompanying obligations (see FAQ #5);
In the case of Catholic schools, the guidance addresses whether the 500 employee limit will be based on the number of employees at a particular school or the number of employees in the diocese (see FAQ #6).
In addition, on April 2, the Treasury Department released guidance, which references certain religious liberty protections (see pages 27-28) and announces that further guidance on religious liberty will be released ‘promptly.’
An official Paycheck Protection Program application released on 4/3/2020 includes the following language:
‘All businesses receiving SBA financial assistance must agree not to discriminate in any business practice, including employment practices and services to the public on the basis of categories cited in 13 C.F.R., Parts 112, 113, and 117 of SBA Regulations. All borrowers must display the ‘Equal Employment Opportunity Poster’ prescribed by SBA.’
That’s Title VI, Title IX, and the Age Discrimination Act.
CAPE notes that the FAQ from the SBA is not an all-clear. There are still huge grey areas about how “safe” religious schools are if they receive this aid. CAPE notes that spending the money on something transient like payroll is likely better than on rent or mortgages, which don’t go away.
WCRIS counterparts across the country have advised opening a separate bank account for receiving federal monies so your school can easily track its use and account for how it is spent (only on payroll, for example).
Finally, there are some observers who have commented that the money is moving so quickly, and will be spent on payroll so quickly, that it will all be gone before the courthouses reopen for opponents of religious schools to file suit.
Given these ambiguities, WCRIS schools are encouraged to talk with their school attorney so they can weigh the decision carefully,
Final Considerations/What To Do Given the Uncertainties
This is a brand new program on a scale not tried in recent memory, with super-fast timelines created by Congress while federal agencies don’t have complete access to their employees. So, under current work and mobility limitations, chaos is going to be the norm.
Schools can talk to their attorney and banker and gather necessary information while these issues are clarified. Then, if you don’t like what you learn about the PPP, you can decline to submit an application.
If you wait to start collecting needed information until these issues are clarified, know that the PPP fund is capped and applications are funded on a “first-come, first serve” basis.
Getting information organized now will speed the process, if you choose to apply.
Paycheck Protection Program Flexibility Act (PPFA) Changes
On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (PPFA) that brought major changes to the Paycheck Protection Program (PPP).
Here are some of the major changes:
- • The amount of PPP funds that need to be used for payroll was reduced to 60 percent.
- The time period to use the funds was extended to 24 weeks from the date of receiving the funds.
- Schools now have until December 31, 2020, to rehire workers.
- The deadline for repaying the loan was moved from 2 years to 5 years.
You can find a list of changes and an overview of the PPPFA here.
