How Nonprofits Can Benefit From Second-Draw PPP Eligibility

On December 27, 2020, the Consolidated Appropriations Act of 2021 was passed by Congress, which provides $284 billion in financial assistance through the Payroll Protection Program (PPP) for small businesses that have been negatively impacted by the COVID-19 pandemic. The legislation includes provisions that improve relief for nonprofit organizations.

Who Can Qualify To Get the Second Round of Funding?

This second round of PPP (PPP2) is a follow-up to the first round of funding passed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The original stimulus package provided forgivable loans of up to $10 million for small businesses with 500 or fewer employees. Businesses that did not qualify for forgiveness will repay the loans over a two- or five-year period depending on when the funding was received.

Once the funds are received, a business has 10 months to apply for forgiveness before the loan must begin being repaid. Even once repayment has begun, a company may apply for forgiveness at any point prior to the maturity of the loan.

PPP2 include less stringent rules for some tax-exempt entities, meaning that more nonprofit organizations will be able to qualify.

The 2021 budget bill includes the following new rules for organizations applying for relief:

• Nonprofits can qualify for funding if they meet the standards of 501(c)(3) or 501(c)(6) organizations, including religious organizations.
• Organizations must have 300 or fewer employees.
• Organizations may apply for up to $2 million of funding, reduced from $10 million allowed under the CARES Act, as noted above.
• Organizations must have shown a decline in gross receipts of at least 25% in any quarter of 2020 when compared to the same quarter in 2019.
• The organization may not receive more than 15% of receipts from lobbying.
• Nonprofits can’t spend more than $1 million on lobbying during the most recent tax year that ended prior to February, 15, 2020.

Eligible PPP Expenses

Congress retained the 60%-40% split of how a PPP loan is to be used if the loan is to be forgiven, with the majority going toward employee wages. In addition to rent, utilities and mortgage interest, the use for the balance of the loan has been expanded to include the following:

• Operational expenses, such as business software and cloud computing; HR and related expenses
• Payments to suppliers
• Worker protection costs, such as PPE

How Do Nonprofits Apply for Funding?

Similar to the first round of the PPP, businesses may qualify for up to 2.5 times their average monthly payroll costs for a time period covering calendar year 2020, calendar year 2019 or the 12 months preceding the loan application. Payroll costs cannot exceed more than $100,000 per employee.

Applications for the PPP loans were opened to small community financial institutions first, prior to being opened to other banks, credit unions and other financial institutions. 

If your nonprofit received a first round of funding, you may apply through the same financial institution. If you received a first round of funding, you should ensure that all funds from the first round will be used prior to receiving a second loan.

If your organization did not receive a first round of funding, you may still work with your bank to receive a PPP loan if you qualify. The rules related to the first round of the PPP would apply.

Please note: The deadline to apply for PPP loans is March 31, 2021.

Just a reminder, ALL CPAs can help you with all aspects of the PPP Program, from applying for loans to calculating forgiveness amount. If you have questions about the PPP program, or how we can help, please contact your ALL advisor or call us at 617-738-5200.