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SBA loans for nonprofits

Government-backed coronavirus relief is now available to tax-exempt organizations.

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The Coronavirus Aid, Relief and Economic Security (CARES) Act opened up eligibility for SBA loans to more businesses, including nonprofits. But there are still restrictions on who can qualify. And you’ll be competing with thousands of businesses for a limited amount of funds.

Which SBA loans can nonprofits qualify for?

Nonprofits can qualify for the Economic Injury Disaster Loan (EIDL) SBA loan program, which is open to nonprofits struggling during the coronavirus outbreak, thanks to the CARES Act.

Economic Injury Disaster Loans

The SBA Economic Injury Disaster Loan (EIDL) Program originally offered loans up to $2 million based on your operating expenses — but that has since been lowered to just $150,000. The interest rate for the EIDL is 2.75% for nonprofits. Terms can stretch as long as 30 years, depending on your organization’s ability to repay.

When the program started, you could also apply for an advance of up to $10,000 that you didn’t have to repay. However, that has since ended and grants through the EIDL program are no longer available.

While disaster loans are meant to cover more operating expenses than the Paycheck Protection Program covered, it might not be sufficient. Some applicants have received notices saying the SBA is only offering up to a total of $25,000 in funding, including the advance. It’s recommended that you also look into other sources of funding, like business loans, as well.

How to apply

You can apply for an Economic Injury Disaster Loan by filling out a short application on the SBA disaster loan website. These loans are only available directly through the SBA — you can’t apply through a bank or other lender.

Generally, it can take anywhere between 20 minutes to just over an hour to complete. Due to the high volume of applications, processing times vary and it may take a few weeks or longer to receive funding.

Paycheck Protection Program loans

The PPP was a low-interest incentive program to encourage small business owners to keep staff on payroll during the coronavirus outbreak. Applications closed in August, and the SBA is now processing applications for loan forgiveness.

How to apply for PPP loan forgiveness

If you borrowed a PPP loan, you can apply for PPP loan forgiveness through your lender, although not every lender has begun to accept applications.

To qualify, you will need to provide a list of eligible payroll and operating expenses. However, nonprofits that borrowed less than $50,000 are given more lenient requirements. Even if you were unable to rehire staff and had to reduce wages, you may still qualify for full forgiveness.

What types of nonprofit organizations qualify?

Generally, you must be a registered nonprofit to qualify for these SBA loans. You also need to either have no more than 500 employees or meet SBA size requirements for your industry. If your industry isn’t listed on the SBA’s website, you must meet the 500-employee limit.

If your nonprofit is affiliated with a larger organization, you’re required to include that organization’s employees with your employee count — with the exception of nonprofits in the hospitality and restaurant industry, which are exempt from the affiliate rule.

Types of nonprofits that qualify for Economic Injury Disaster Loans

The following nonprofits are eligible to apply for an Economic Injury Disaster Loan:

  • 501(c) nonprofit organizations
  • 501(d) religious nonprofit organizations
  • 501(e) cooperative hospital service organizations
  • Tribal businesses, as described in section 31(b)(2)(C) of the Small Business Act
  • Houses of worship that meet 501(c)(3) criteria but aren’t registered

Types of nonprofits that qualified for Paycheck Protection Loans

The following nonprofits were eligible to apply for the Paycheck Protection Program:

  • 501(c)(3) nonprofit organizations
  • 501(c)(19) veterans organizations
  • Tribal businesses, as described in section 31(b)(2)(C) of the Small Business Act
  • Houses of worship that meet 501(c)(3) criteria but aren’t registered

My nonprofit is a faith-based organization. Is it eligible?

Yes. The CARES Act also opened up both of these programs to faith-based organizations — even those that don’t provide secular services. But your organization is required to meet a few legal requirements while it’s paying back the loan. You can get more details on what this means for you with our guide to SBA loans for faith-based organizations.

What can disqualify a nonprofit organization?

Even if your organization meets the right tax exemption and size requirements, there are a few factors that could disqualify you from getting these loans.

  • Affiliation with another organization. With the exception of the hospitality and restaurant industry, the SBA considers your affiliate’s employees when calculating your business size. If this tops 500 or your industry’s size requirements, you’re ineligible.
  • Legal status. All stakeholders with more than a 20% share in your organization must be US citizens or permanent residents.
  • Delinquencies and defaults. If your nonprofit or a stakeholder is currently delinquent on a federal loan, your organization won’t qualify. And past defaults on federal loans will also disqualify you.
  • Criminal convictions. If a stakeholder was convicted of a financial-related felony in the past five years, a misdemeanor or felony involving a minor in the past five years or any other felony in the past year your organization could be ineligible.
  • Current criminal proceedings. If a stakeholder is in the process of any kind of criminal proceedings, from arraignment to parole, it will likely disqualify your organization.

3 alternatives for nonprofits

PPP loans and EIDLs can be useful — but they take a lot of time to process and might not offer as much as you need. Instead, consider these three alternatives.

  • Grants. Many state and local governments as well as private organizations have launched COVID-19 grant programs — some specifically for nonprofits affected by the coronavirus outbreak.
  • Coronavirus loans. State and local governments have also started offering low-interest and interest-free loans, though generally these are more available to for-profit businesses.
  • Crowdfunding. Move your annual gala fundraiser online by setting up a crowdfunding campaign with a site like GoFundMe.

Bottom line

Nonprofits can now apply for SBA funding through the Paycheck Protection Loan and Economic Injury Disaster Loan Programs, thanks to the CARES Act. But with a slow turnaround and few approved applications, you might want to also consider other options.

Read our guide to grants for businesses and nonprofits affected by the coronavirus for more details. Or, get more tips on how to manage your business during the outbreak by checking out our COVID-19 hub.

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