Hide table of contents

The CARES Act Small Business Association Paycheck Protection Program offers US-based nonprofits (or those with US-based staff) with 500 or fewer employees the opportunity to apply for loans of up to $10M or 2.5x average monthly payroll from 2019 (whichever is less).

This is an emergency support loan exclusively for businesses to retain workers they'd otherwise be unable to keep on payroll.

So long as you maintain certain requirements, every dollar from the loan that you spend on salaries over the next two months will be forgiven. In other words, this loan can effectively become a grant.

The program launches this Friday, April 3rd, 2020 and is offered on a first-come, first-served basis until the $349B pool of funding runs out. Funding could run out quickly, so time could be of the essence.

There are millions of businesses who will be applying for this so I want to make sure you get at the front of the line!

*What are the loan forgiveness terms?

You must certify that the loan will be used to retain workers, maintain payroll, make mortgage or lease payments, and pay utilities.

You must sign in good faith that "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant".

To be eligible for forgiveness, you should expect that you will have to verify the employees kept on payroll and the wages paid to these employees, as well as any other qualified expenses between February 15, 2020, and June 30, 2020.

You have eight weeks (from the date of the loan and between February 15 - June 30, 2020) to spend the money and have it considered for forgiveness.

As long as the number of full-time equivalent (FTE) employees at the end of this eight week period matches the number of FTE you had before (either calculated an average monthly FTEs during Feb-Jun 2019 or average monthly FTEs in Jan + Feb 2020), your loan will be forgiven. It can also be partially forgiven in proportion to your reduction in FTEs.

Every dollar you spend during this eight-week period will be forgiven as long as it is a qualifying expense and you maintain certain FTE (and salary) requirements.

Qualifying expenses include payroll costs (including W2 wages, 1099 compensation, group health care benefits, and retirement benefits ...but excluding compensation to individuals >$100k a year), rent and utilities, mortgage interest, and other interest on debt (if the debt existed before February 15, 2020).

At least 75% of the forgiven amount must have been used for payroll.

If you rehire employees that you previously laid off after February 15, 2020 and/or if you restore the salary for those employees that may have seen a wage reduction no later than June 30, 2020, any corresponding reduction in loan forgiveness can be avoided.

Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. If not forgiven, interest rates are capped at 4%.

How do I apply?

Do the following ASAP to ensure you can submit to banks this Friday, April 3:

  1. Verify that you qualify (you are a US 501c3 organization employing less than 500 employees and you don’t have an application pending for another SBA 7(a) loan or have received cash under another SBA 7(a) loan)
  2. Calculate the amount should apply for, given projected qualifying expenses and forgiveness. (Refer to this sample calculation document to calculate your payroll costs, which will help you estimate your total loan request.)
  3. Gather internal decision makers (e.g., C-suite, board members, finance team) to review your governance process and reach consensus on the decision to apply for a loan.
  4. Reach out to your retail banking partner. Tell them “I want to apply for the CARES ACT SBA LOAN 7(a)”. If you don’t already have a local lender, you can find ones for your area here. If your lender doesn’t know what CARES ACT LOAN 7(a) is or suggests you get a “Disaster Recovery Loan” (wrong loan!), shop around.
  5. Gather the required documents. See what your retail banking partner asks for and what guidance they offer, but generally you will likely need some of these:
    • proof you were in operation on and prior to 15 February
    • proof you have paid employees (including payroll estimates)
    • last three fiscal year-end financials (minimum tax return)
    • year to date financials for Feb 15, 2020, with prior period comparable
    • SBA Form 1919 and maybe SBA Form 912 and SBA Form 413
    • detailed debt amortization schedule (if you have debt)
    • business certificate/license, records of loans applied for in the past, income tax returns (previous three years)
    • resume for each principal detailing their industry experience
    • a summary of the history of the business
    • an explanation of the business need for the loan (you must warrant that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations and acknowledgment that the funds will be used to retain workers and maintain payroll - make sure this is true and is stated in the explanation)
    • Any other information pertaining to the negative financial impact of the virus (e.g., a manufacturer had to start sourcing from a different supplier that was materially more expensive)


Thanks to Mikaela Saccoccio and Kieran Greig for sharing their research for which this post draws significantly on (with permission). Also, thanks to Rose Wang for further contributions to the research in this document.

Please note that none of us are financial advisers and the information contained in this article should not be interpreted as financial advice. This information was also put together hastily and may potentially contain major inaccuracies - please consult with your retail banking partner or another financial advisor before making major decisions.

Sorted by Click to highlight new comments since:

Hi Peter,

I'd like to make the eligibility criteria clear to any prospective applicants:

  • "The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll." (link)
  • The boards and directors of the business have to sign in good faith that "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant" (link)
  • Providing misleading or incomplete information is a federal crime

This is an emergency support loan exclusively for businesses to retain workers they'd otherwise be forced to make redundant. At the moment, my interpretation of your summary is that you could make this point more prominent. At the moment, it's only included in the required documents section.

The wording 'make sure to mention that uncertainty of current economic conditions makes necessary the loan request' I think could be misinterpreted as leading people to exaggerate this factor, though I appreciate this may not be your intention.

I think it would be safer to say that 'this loan is exclusively available to businesses which are struggling to maintain their staff on the payroll and meet bill payments, and if this condition applies to your organisation, then please report this accurately in the documents you provide'.


Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant

I guess I assumed this was true for everyone, but I have now made it more clear and prominent throughout my article. If you're lucky enough to not have economic uncertainty, I agree you should not apply for this grant.

I think there's a difference between "are you affected by economic uncertainty" - which probably applies to all nonprofits right now - and "are you about to lay off staff or not be able to pay them." The fact that loan forgiveness goes to organizations that have not laid anyone off within 8 weeks implies to me that it's intended for organizations that would otherwise lay off staff or be unable to pay them within that timeframe, and I think most EA orgs have more than 8 weeks of runway.

The updated version of the post is clearer, though!

It's the only time I can remember where it seems unfortunate that EA as a movement is good at planning and ensuring that critical nonprofits have sufficient runway.

WaPo's FAQ about the program seems pretty good.

Q: Can the loan eventually be forgiven?
Yes. The program includes loan forgiveness covering costs for the first eight weeks of the loan for companies able to keep employees on payroll or continue paying bills throughout the coronavirus crisis.
The amount of loan forgiveness will include payroll costs for individuals below $100,000 in annual income, mortgage and rent obligations, including interest and utility payments. If an employee is above a $100,000 annual salary, the first $100,000 will be factored into the company’s loan forgiveness total but any amount above that will not. As of Wednesday morning the SBA had not decided whether benefits will factor into that cap.
The total amount of forgiveness will be reduced if your workforce is drawn down through attrition or if wages are reduced. If you are forced to lay off employees because of economic conditions, you may be able to preserve some of your loan guarantee by hiring them back.
As long as the number of full-time equivalent (FTE) employees at the end of this eight week period matches the number of FTE you had before (either calculated an average monthly FTEs during Feb-Jun 2019 or average monthly FTEs in Jan + Feb 2020), your loan will be forgiven. It can also be partially forgiven in proportion to your reduction in FTEs.

This phrasing is ambiguous as to what would happen to loan forgiveness if a firm increased the number of full-time employees during the loan period.

A friend's firm asked me about this so I poked into it a bit. Having done that, I'm ~80% sure that increasing headcount during the loan period wouldn't affect loan forgiveness.

From the statute text:

In General.—The amount of loan forgiveness under this section shall be reduced, but not increased, by multiplying the amount described in subsection (b) by the quotient obtained by dividing—
the average number of full-time equivalent employees per month employed by
the eligible recipient during the covered period; by
at the election of the borrower—
the average number of full-time equivalent employees per month employed by
the eligible recipient during the period beginning on February 15, 2019 and ending
on June 30, 2019; or
the average number of full-time equivalent employees per month employed by
the eligible recipient during the period beginning on January 1, 2020 and ending on
February 29, 2020; 

(Formatting isn't perfect because legal formatting doesn't play nice with EA Forum formatting.)

Yes, it is correct that increasing headcount will not affect loan forgiveness.

Fred Wilson points out the language of the act may prevent VC-backed startups from accessing the funds, because they are "affiliated" with organizations such that the total size of the affiliation is >500 employees: https://avc.com/2020/03/startups-and-sba-loans/

(This is because taking VC investment "affiliates" the startup with every other org the VC has funded.)

Has anyone looked into whether there might be an analogous concern for nonprofits who receive donations from foundations that have a lot of grantees, e.g. Open Phil?

We're looking into this and will get back to you. Let me know if you find anything.

Ought's accountants (who've taken a close look at the CARES Act) confirmed that the "affiliation test" is determined by ownership, so it shouldn't be an issue for nonprofits so long as the org isn't owned by its donors.

Cool! I think the grant framework is different than a typical investor engagement that a VC arranges. If you read our Open Phil contracts you can see we are not partners.

Yeah, I'd be pretty surprised if any reputable foundations were taking ownership stake when they make grants. (Because that'd be an investment, not a donation.)

This discussion of which VC-backed startups are ineligible makes me think most nonprofits will be eligible: https://intro.indie.vc/vcbacked-companies

Not definitive though.

CFAR's local bank sent out the following email to its clients a few minutes ago. I thought some of you might find it useful to know, especially the part where they claim no one will be getting these loans before next week.

Clients of Community Bank of the Bay,
The SBA issued its Interim Final Report on the Paycheck Protection Program (“PPP”) on Thursday evening at about 6:00 est.  Since then, we and other SBA Preferred Lenders have been reviewing the guidance, and have gotten clarity on some issues and found that others still remain undecided.  You may note that this information comes from the Interim Final Rule.     
What we have found is that all applications will be submitted digitally.  They will be completed directly by you the borrower through our bank’s portal once we provide you with secure access.  Along with the application, which is to be an SBA application (not a U.S. Treasury application) THAT HAS NOT YET BEEN FINALIZED, you will need to provide the following so that the Bank can verify payroll information and comply with applicable regulations.  Specifically, we must be able to do a number of certifications, including but not limited to the following:  
Bank must confirm that borrower was in business and incurred payroll costs on or about February 15, 2020.  (please gather your February 2020 payroll information)
Bank must confirm that the loan amount conforms with borrower’s average monthly payroll in the preceding calendar year. (please gather your 2019 payroll information). 
Conform with all applicable Bank Secrecy Act / Anti-Money Laundering and Beneficial Ownership regulations.  (This will already have been done for borrowing entities that are already clients.  If the borrowing entity is an affiliate of a CBB client, but does not have accounts here, we will need to focus on obtaining this information / documentation.) 
All in all the application process appears to be fairly simple.  The borrower completes the application, certifies to various items of status and provides information on line.  The Bank then approves the loan through its SBA Delegated Authority.  Because we are required to certify recent payrolls using prior calendar year information, my advice would be to not complicate the application by trying to include a lot of special circumstance employees.  For this program, simple equals speed to approval, documentation and receipt of funds. 
The loans will be for two years at an interest rate of 1.00% p.a. and SBA will defer all payments during the first six months.  Eight weeks after the loan is disbursed the borrower provides the Bank with documentation of how the funds were utilized and applies for loan forgiveness.  Per the Interim Final Rule, “ Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities.  Not more than 25% of the forgiven amount may be for non-payroll costs.”            
The issue now is of course that the official SBA application and associated on-line portal is not yet finalized.  Therefore we have not yet been able to post it to our website and test it.  It is the same for other banks.  Wells Fargo is stating on their website that they will not offer this loan until Monday at the earliest.  And regarding the application that I know others are telling you is official, Chase Bank literally says on their website, “Please do not send us U.S. Treasury applications”.  To my knowledge only Bank of America has made a portal available to their clients, but they specifically state that they won’t be processing any applications until mid-next week.      
I know this is frustrating, and I assure you it to us as well.  Community Bank of the Bay has been an active, SBA Preferred Lender for over ten years.  We are in direct contact with the SBA and their national servicer.  We assure you that we will keep you informed of the latest information on this Program, and as soon as it is available we will process your application in an efficient and timely manner.   
In the meantime, please gather the payroll information that I cited above.  If you are planning to apply through an entity that is not already a client of the Bank please contact your RM or branch to get started on opening the account.  If you would like to read the Interim Final Report, here is a copy that was distributed by a reputable third party - 
Thank you for your continued partnership with our Bank. 

We're now in contact with Chase (our bank) about applying. Unsure about the timeline.

I got nervous when I heard people were applying for forgiveness, so I looked into it. Here's what I found

  • Some banks are accepting forgiveness applications right now, my bank isn't and is working on their own submission process. I discovered this my googling "[my bank] PPP loan forgiveness".
  • The absolute drop dead deadline before you will be charged interest is 10 months after the period the loan covers (source)
  • Sample application and instructions here

Per Chase Business, it looks like they aren't ready to take applications yet. I would expect significant delays.

[comment deleted]2
Curated and popular this week
Relevant opportunities