On April 7, 2020, in response to the ongoing COVID-19 crisis, New York State Governor Andrew M. Cuomo issued Executive Order No. 202.14. This Executive Order addresses the witnessing of wills during the current pandemic.
Under New York State Estates, Powers and Trusts Law, the person executing his or her will (known as the “testator”) must either sign the will in the presence of at least two witnesses, or acknowledge his or her signature to each witness. Unfortunately, both of these acts require the testator to be in the physical presence of the witnesses, and in the era of social distancing, physical presence is both impractical and potentially dangerous.
Executive Order No. 202.14 modifies these requirements until May 7, 2020, to allow for the witnessing of wills without requiring the testator to be in the physical presence of the witnesses.
Pursuant to the Executive Order, wills may be witnessed using audio-video technology, so long as the following conditions are met (in conjunction with the standard will execution requirements):
- If the testator and the witnesses are not acquainted, the testator must present valid photo ID to the witnesses during the video conference.
- Video conferences must allow for direct interaction between the testator and the witnesses (as well as any supervising attorney); the conference must be live and not pre-recorded.
- On the same date that the testator signs the will, the witnesses must receive a legible copy of the page signed by the testator, by fax or electronic means.
- The witnesses may sign the faxed or electronically delivered signature page and return the signed page back to the testator.
This Executive Order provides a powerful tool to properly execute wills during these uncertain times. As always, it is prudent to have a licensed attorney supervise the signing of wills, and an attorney may do so by joining in the live audio-video conference.
The attorneys at Capell Barnett Matalon & Schoenfeld LLP are familiar with these rules, and are able to assist our clients with the preparation and signature of estate planning documents as required by law.
 The Executive order also applies to virtual witnessing of health care proxies, statutory gifts riders, lifetime trusts, recording instruments affecting real property, and disposition of remains.
ATTORNEY ADVERTISING: This memorandum provides general information on legal issues and developments of interest to our clients and friends. It is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters we discuss here. Should you have any questions or wish to discuss any of the issues raised in this memorandum, please call your Capell Barnett Matalon & Schoenfeld LLP contact.
In the midst of the legal issues raised by the CARES Act and other matters stemming from the COVID-19 crisis, one of the questions has been whether “gig workers” are entitled to unemployment insurance benefits. As part of the CARES Act, Pandemic Unemployment Assistance (PUA) was intended to provide payment to workers “not traditionally eligible for unemployment benefits” (self-employed, independent contractors, workers with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.
In the State of New York, we are getting closer to a definitive answer, though not from the CARES Act but from the New York Court of Appeals, New York’s highest court, which issued a decision Thursday, March 26, 2020, in Matter of Vega (Postmates, Inc.) v Commissioner of Labor, 2020 WL 1452612.
One of the biggest issues is the varying definition of “gig.” I summarize and quote from that decision. The quotes may be a little lengthy but will be helpful in applying this case to other circumstances and workers. The Court of Appeals determined that THESE gig workers, at least, ARE entitled to collect unemployment benefits. The decision was written by Chief Judge DiFiore. She said, “The majority of workers in the app-enabled gig economy come from this economically vulnerable demographic . . . . Although the Unemployment Insurance Law was passed decades before the digital age, today’s app-enabled gig worker is subject to the same devastating financial ‘insecurity’ faced by prior generations of unemployed wage earners and which initially motivated legislators to act” to create the unemployment insurance program.
This case involved “Postmates,” “a delivery business that uses a website and smartphone application to dispatch couriers to pick-up and deliver goods from local restaurants and stores to customers in cities across the United States—deliveries that are, for the most part, completed within an hour. Postmates solicits and hires its couriers, who undergo background checks before being approved to work by Postmates. Once they are approved, the couriers decide when to log into the application and which delivery jobs to accept. Once a courier accepts a delivery job made available through the application, the courier receives additional information about the job from Postmates, including the destination for the delivery. After completing a job, Postmates pays the couriers 80% of the delivery fees charged to customers, and payments are made by the customer directly to Postmates, which pays its couriers even when the fees are not collected from customers. Couriers’ pay and the delivery fee are both nonnegotiable.”
The claimant, “Vega,” worked as one of those “couriers” but “Based on negative reviews from customers . . . Postmates blocked [him] from using the application” and he filed for unemployment benefits.
The Court recognized that “Unemployment insurance is temporary income for eligible employees who lose their jobs through no fault of their own.” If a worker is an “employee” unemployment contributions must be made, “rather than independent contractors for whom no such contribution need be made.”
Under the Labor Law, “employment” is broadly defined as “any service under any contract of employment for hire, express or implied, written, or oral.” The key factor in that determination “is whether the employer exercised control over the results produced by the worker or the means used to achieve the results.”
Here, “Postmates exercised control over its couriers sufficient to render them employees rather than independent contractors operating their own businesses. The company is operated through Postmates’ digital platform, accessed via smartphone app, which connects customers to Postmates couriers, without whom the company could not operate. While couriers decide when to log into the Postmates’ app and accept delivery jobs, the company controls the assignment of deliveries by determining which couriers have access to possible delivery jobs. Postmates informs couriers where requested goods are to be delivered only after a courier has accepted the assignment. Customers cannot request that the job be performed by a particular worker. In the event a courier becomes unavailable after accepting a job, Postmates—not the courier—finds a replacement. Although Postmates does not dictate the exact routes couriers must take between the pick-up and delivery locations, the company tracks courier location during deliveries in real time on the omnipresent app, providing customers an estimated time of arrival for their deliveries. The couriers’ compensation, which the company unilaterally fixes and the couriers have no ability to negotiate, are paid to the couriers by Postmates. Postmates, not its couriers, bears the loss when customers do not pay. Because the total fee charged by Postmates is based solely on the distance of the delivery and couriers are not given that information in advance, they are unable to determine their share until after accepting a job. Further, Postmates unilaterally sets the delivery fees, for which it bills the customers directly through the app. Couriers receive a company sponsored ‘PEX’ card which they may use to purchase the customers’ requested items, when necessary. Postmates handles all customer complaints and, in some circumstances, retains liability to the customer for incorrect or damaged deliveries.”
The Court continued “Postmates exercises more than ‘incidental control’ over its couriers—low-paid workers performing unskilled labor who possess limited discretion over how to do their jobs. That the couriers retain some independence to choose their work schedule and delivery route does not mean that they have actual control over their work or the service Postmates provides its customers; indeed, there is substantial evidence . . . that Postmates dominates the significant aspects of its couriers’ work by dictating to which customers they can deliver, where to deliver the requested items, effectively limiting the time frame for delivery and controlling all aspects of pricing and payment.”
“Customers cannot choose, nor do they have reason to choose, a particular individual to perform the delivery . . . Postmates’ couriers do not have the ability to create a following or generate their own customer base. Instead, Postmates has complete control over the means by which it obtains customers, how the customer is connected to the delivery person, and whether and how its couriers are compensated.”
These gig workers were considered employees and entitled to New York State unemployment benefits.
The Court’s analysis and conclusion are in accord with the trend of its decisions that the definition of “employee” is broad and expanding. Likewise, these employees should be entitled to the Federal Pandemic Unemployment Assistance benefits.
This article is for informational purposes only and does not constitute legal or business advice. If your business or organization requires assistance, please contact Joseph Milano, Esq., at email@example.com
NON-PROFIT ORGANIZATIONS GUIDANCE
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) is designed to assist nearly every facet of the American economy, including the non-profit sector, and provides $10 billion of funds in the form of repayable loans.[i] Section 1110 of the CARES Act expands working capital loans, provided by Section 7(b)(2) of the Small Business Act, also known as Economic Injury Disaster Loans (“EIDL”), to address economic injury suffered as a result of the coronavirus (COVID-19) situation,[ii] and establishes the covered period for loans from January 31, 2020 to December 31, 2020.[iii]
Entities eligible to receive EIDL from the Small Business Administration (“SBA”) include:
i. small businesses (as defined using the SBA’s size and industry requirements in its “Table of Size Standards”),
ii. small agricultural cooperatives with less than 500 employees,
iii. sole proprietors,
iv. independent contractors,
v. nonprofit organizations including certain faith-based organizations,
vi. tribal businesses with less than 500 employees, and
vii. employee stock ownership plan (ESOPS) with less than 500 employees.[iv]
It is important to note that although nonprofit organizations exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code are generally eligible for EIDL,[v] the SBA’s earlier regulations prohibit EIDL to organizations “[p]rincipally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs.”[vi] However, recent guidance from the SBA suggests that it does not intend to enforce that provision of the law, and that “no otherwise eligible organization will be disqualified from receiving a loan because of the religious nature, religious identity, or religious speech of the organization.”[vii] Further, the SBA’s guidance states that EIDL “can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions.”[viii] For further information: SBA Guidance on Faith-Based Organizations.
Eligible nonprofit organizations may receive both EIDL and loans available under the Paycheck Protection Program (“PPP”)[ix], so long as such loans are not used for the same purpose or otherwise duplicative of each other.[x]
The SBA will provide eligible entities with low interest EIDL of up to $2 million with varying repayment terms of up to 30 years.[xi] The CARES Act reduces the interest rate of EIDL from 4% to 3.75% for small businesses and 2.75% for private nonprofit organizations.[xii] Principal and interest may be deferred for up to four (4) years.[xiii] EIDL proceeds may be utilized for a boarder range of items compared to PPP loans and are intended to help overcome the temporary loss of revenue by being used to pay: fixed debts, payroll, accounts payable, and other expenses that cannot be paid as a result of the disaster.[xiv] EIDL proceeds may not be used to replace lost sales or profits, for expansion of the organization or for unnecessary expenditures.[xv] The loans are not forgivable and are required to be repaid according to the terms of the loan. The SBA will not impose any early payment penalties on the loans.
The CARES Act waives the typical requirements for EIDL, such as:
i. personal guarantee on advances and loans of less than $200,000.00,[xvi]
ii. the requirement that an applicant show that it is unable to obtain credit elsewhere,[xvii] and
iii. the requirement that the applicant must be in business for a period of 1-year before the disaster; provided the applicant was in operation as of January 31, 2020.[xviii]
During the EIDL approval process, the SBA may determine an applicant’s ability to repay the loan:
i. based solely on the applicant’s credit score; or
ii. using alternative appropriate methods.[xix]
EILD applicants must submit applications directly to the SBA and cannot apply through a bank or credit union. To the extent possible, applicants should provide as much financial information as possible upon submission of the application. To streamline the process, it is recommended that applicants submit a detailed cover letter with the application indicating the following:
i. Applicants projected economic loss, as a result of COVID-19,
ii. The amount of the requested loan, and
iii. The amount of the requested emergency advance.
The application can be completed directly through the SBA’s Disaster Assistance Program websites, Covid-19 Economic Injury Disaster Loan Application.
In addition to the EIDL amount, an EIDL applicant may request on its application to receive an emergency advance of up to $10,000.00 on its loan in order to help the applicant in the short-term.[xx] The SBA is required to provide the applicant with such advance within three (3) day of receipt of the application. To be considered successful, the applicant must self-certify, under the penalty of perjury, that it is an eligible entity.[xxi] The advance will not have to be repaid even if the applicant is subsequently denied an EIDL.[xxii]
If an applicant receives an emergency advance through the EIDL process and subsequently “transfers into… a loan” under SBA’s PPP, such grant amount will be reduced from the total loan forgiveness amount of the PPP loan.[xxiii]
The emergency advance may be used to address any allowable purpose for a loan made under section 7(b)(2) of the SBA, including but not limited to:
i. providing paid sick leave to employees unable to work due to the direct effect of COVID-19,
ii. maintaining payroll to retain employees during business disruptions or substantial slowdowns,
iii. meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains,
iv. making rent or mortgage payments, and
v. repaying obligations that cannot be met due to revenue losses. [xxiv]
The information in this article is continuously changing and being updated, and several details of the EIDL and PPP loans are yet to be announced by the U.S. Treasury and SBA and no final rules have been promulgated. This publication is for informational purposes only and does not constitute legal or business advice. Each entity, based on its specific circumstances, must determine whether to seek and secure an SBA loan. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate for all entities to seek such loans. This publication is not intended to create and the transmission and receipt of it does not constitute, a lawyer-client relationship. If your private non-profit organizations requires assistance, please contact Renato Matos, Esq., at RMatos@cbmslaw.com or David de Barros, Esq., at DdeBarros@cbmslaw.com.
© 2020 Capell Barnett Matalon & Schoenfeld LLP. All rights reserved. Attorney advertising.
[i] See id. at § 1107(a)(6) “$10,000,000,000 under the heading ‘‘Small Business Administration—Emergency EIDL Grants’’ shall be for carrying out section 1110 of this Act.”
[ii] “The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.” Disaster Loan Assistance, Economic Injury Disaster Loans, U.S. Small Business Administration, https://disasterloan.sba.gov/ela/Information/EIDLLoans (last visited April 6, 2020).
[iii] See Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, 116th Con. (2020) § 1110(a)(1), § 1110(e)(8) Termination.
[iv] See Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, 116th Con. (2020) § 1110(a)(2), § 1110(b) Eligible Entities.
[vi]See 13 CFR § 123.301(g). When would my business not be eligible to apply for an economic injury disaster loan?
[vii] See FREQUENTLY ASKED QUESTIONS FOR FAITH-BASED ORGANIZATIONS PARTICIPATING IN THE PPP AND EIDL LOAN PROGRAMS. U.S. Small Business Administration, https://www.sba.gov/sites/default/files/2020-04/SBA%20Faith-Based%20FAQ%20Final.pdf (last visited April 6, 2020).
[ix] For more details on the Paycheck Protection Program, see Capell Barnett Matalon & Schoenfeld LLP’s article titled: Economic Relief for Non-Profit Organizations Through the Paycheck Protection Program from April 2, 2020 here.
[x] See id. at §1102(a)(2)(36)(Q). “Nothing in this paragraph shall prohibit a recipient of an economic injury disaster loan made under subsection (b)(2) during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available that is for a purpose other than paying payroll costs and other obligations described in subparagraph (F) from receiving assistance under this paragraph.”
[xi] See Coronavirus (COVID-19), supra note 3.
[xv]See 13 CFR § 123.303(a). You can only use the loan proceeds for working capital necessary to carry your concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury, but not to exceed that which the business could have provided had the injury not occurred.
[xvi]See id. at § 1110(c)(1).
[xvii]See id. at § 1110(c)(3).
[xix]See id. at § 1110(d)(1), (2) Approval and Ability to Repay for Small Dollar Loans.
[xx]See id. at § 1110(e)(3) Amount.
[xxi]See id. at § 1110(a)(2); (b); § 1110(e)(2) Verification. “…pursuant to section 1746 of title 28 United States Code.”
[xxii]See id. at § 1110(e)(5) Repayment.
[xxiii]See id. at § 1110(e)(6) Unemployment Grant.
[xxiv]See id. at § 1110(e)(4)(A)-(E) Use of Funds.
Resources for Religious Organizations, Foundations, Charities, and Other Non-Profit Organizations Related to Coronavirus (COVID-19)
The novel Coronavirus (COVID-19) has spread to countries worldwide. We have curated a collection of resources that may be helpful for Boards and management of religious organizations, foundations, charities, and other non-profit organizations in navigating this crisis. We will update this page as developments warrant.
The Paycheck Protection Program (“PPP”) through the U.S. Small Business Administration offers loans to small businesses and non-profit organizations, among other types of entities, of up to $10 million. For more information, including about the PPP’s applicability to non-profit organizations, please see CBMS’s article.
Economic Injury Disaster Loans and Loan Advances are being provided to small businesses and private non-profit organizations by the U.S. Small Business Administration. These loans are low-interest fixed rate loans of up to $2 million and loan advances of up to $10,000 that can be used to pay immediate expenses during this emergency. For more information, please see CBMS’s guidance here.
Private Sector Relief Funds:
Facebook Small Business Grants Program is distributing $100 million in cash grants and ad credits to help small businesses weather the storm created by COVID-19. Small businesses or organizations with between 2 and 50 employees that have been operating for more than a year, have experienced challenges from COVID-19, and operate in one of the five boroughs of New York City are eligible to apply.
Citi and the Citi Foundation have committed $10 million to help Community Development Financial Institutions in the US serve small businesses who may not fully qualify for federal government stimulus funding.
Community Foundation Relief Funds for Non-Profits (NY): Service-providing non-profit organizations may be able to obtain grants and/or loans to assist in providing services to frontline workers and/or vulnerable populations. Check out the following resources:
The New York Community Trust: This fund will give grants and loans to NYC-based nonprofits that are providing aid to those struggling with fallout from COVID-19. Priority will be given to nonprofits addressing essential healthcare and food insecurity as well as arts and culture. Funds will help nonprofits with a variety of needs, including protective equipment, cleaning supplies, technological assistance, and support for financial losses.
NYC COVID-19 Response & Impact Fund: This fund is providing no-interest loans ranging from $100,000.00 to $3,000,000.00 to New York City nonprofit organizations working in the human services, with particular interest in those supporting essential healthcare, food delivery, homeless services, workforce development, educational support, and early childhood education, and arts and culture. The application through the Nonprofit Finance Fund can be found here.
Brooklyn COVID-19 Response Fund: This fund is providing grants to frontline advocacy and service organizations in Brooklyn that are providing aid to vulnerable populations, meal delivery, and daily living needs for homebound neighbors, support for low-wage workers, and limited access to healthcare and paid leave.
Neighborhoods First Fund: This fund makes grants to support community-led organizations and coalitions that engage local residents, workers, businesses, institutions, and government in creating, enacting, and implementing policies and plans that shape New York City and its neighborhoods. To inquire about a grant, fill out the form here.
Robin Hood has established a COVID-19 relief fund for organizations at the frontline of relief efforts including serving vulnerable populations, emergency assistance, at risk for govt contracts, incurred unexpected expenses.
COVID-19 Long Island Philanthropic Response Fund by the Long Island Community Foundation is providing grants to aid nonprofit organizations in Long Island providing services for those affected by COVID-19.
National Council on Aging COVID-19 Community Response Fund is providing grants to qualified local nonprofit organizations that are meeting needs of older populations.
Delta Dental Foundation is providing unrestricted grants for organizations in New York State helping vulnerable populations affected by COVID-19 in the form of medical services and/or services for home-bound seniors. See here for the grant application and guidelines.
General Non-Profit Resources:
Workplace guidance from CDC (updated regularly).
Many tech companies have made products for remote work free during this period. See this roundup.
Here is guidance on changing a physical event to a virtual event.
New York Council of Nonprofits, Inc. is hosting calls and pertinent topic webinars on a weekly basis to assist non-profits with COVID-19 updates. See the full calendar here.
Resources for Foundations:
Council on Foundations has a resource center for foundations.
Resources for Churches & Religious Organizations:
The CDC has a resource page for community and faith-based leaders.
Georgetown University’s Berkley Center for Religion, Peace, & World Affairs has a resource guide for faith-based organizations.
The Mother Cabrini Health Foundation provides grants to nonprofit organizations serving low-income individuals, families and communities in New York. All grantees must adhere to and comply with the ethical principles, tenets, and teachings of the Roman Catholic Faith, including but not limited to the Ethical and Religious Directives for Catholic Health Care Services published by the United States Conference of Catholic Bishops. Applicant organizations are not required, however, to be affiliated with the Catholic Church to be eligible for grants.
Resources for Charitable Organizations Providing Direct Relief Assistance:
The IRS has guidance on documentation a charity providing disaster relief assistance must maintain to document its relief activities.
The information provide in this resource list is continuously changing and being updated. This list is for informational purposes only and does not constitute legal or business advice. If your business or organization requires assistance, please contact Renato Matos, Esq., at Rmatos@cbmslaw.com.
In response to the 2020 Coronavirus pandemic, President Trump signed into law, a $2.2 trillion economic stimulus program called the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”). The Cares Act is designed to distribute money quickly to provide immediate financial relief to qualified individuals, small businesses, and other organizations. One of the most far-reaching sections of the Cares Act is the Paycheck Protection Program (“PPP”) which expands the economic relief the Small Business Administration (“SBA”) can offer and creates incentives to retain and pay employees during these uncertain and stressful times.
The Cares Act’s PPP commits $349 billion for – potentially forgivable – loans, by expanding loans provided by the SBA under Section 7(a) of the Small Business Act. PPP expands the recipients eligible for federally-backed loans, by including certain non-profit organizations as a qualified business. Small businesses, non-profit organizations, sole proprietorships, self-employed individuals, and independent contractors that meet the criteria and requirements of the program can apply for a loan through PPP. Specifically, a qualified non-profit organization is any entity: (a) exempt from federal income taxes undereither Section 501(c)(3) and 501(c)(19) (veteran organizations) of the Internal Revenue Code (“Code”), and (b) with fewer than 500 employees, including individuals employed on a full-time, part-time , or other basis . This article will solely focus on how PPP applies to non-profit organizations exempt from taxes under 501(c)(3) of the Code with fewer than 500 employees (“Non-profit Organization”), including certain religious and charitable organizations.
The SBA will guarantee 100% of the loans issued by qualified banks, credit unions and other lenders previously authorized to issue loans under Section 7(a) of the SBA or recently designated by the Treasury Department. Through the PPP, eligible recipients can receive a loan up to $10 million with a fixed interestrate of 0.5%. The loan amount is determined based on the Non-profit Organization’s payroll (as such term is defined below) and will be the lesser of: (a) 2.5 times the average monthly payroll costs incurred during the one year period before the date on which the loan is made (seasonal businesses and companies not in existence from February 15, 2019 to June 30, 2019, are treated differently), and (b) $10 million. The repayment of the loan (principal and interest) will be deferred for six (6) months, however, interest will continue to accrue over this period. No personal guarantee is required, no collateral is needed to be pledged to secure the loan, no administration fee will be charged (although participating lenders may charge a fee) and there will be no prepayment penalties. In addition, the loan is nonrecourse (the lender has no claim against any member of a Non-profit Organization for non-payment), except if the proceeds are used for prohibited or illegal uses.
A PPP loan must be used for the following expenses:
(a) payroll costs,
(b) interest on mortgage obligations (not including prepayment or the payment of principal) or other debt obligations existing prior to February 15, 2020,
(c) rent under an enforceable lease agreement executed prior to February 15, 2020, and
(d) utility payments for which services began prior to February 15, 2020 (collectively, “Eligible Operation Expenses”).
Specifically, “payroll” includes salaries, wages, commission, payroll support (paid vacation, sick, medical and family leave), group healthcare benefits (including insurance premiums), retirement benefits and the payment of state or local employment taxes. However, payroll expenses exclude: (a) salaries for individual employees in excess of $100,000 annually, (b) payroll taxes, railroad retirement taxes, and income taxes, (c) compensation for employees with a foreign principal residence, and (d) qualified wages for which a credit is permissible under another federal program (sick or family leave programs).
A Non-profit Organization can apply for a loan through PPP from any existing SBA lender, federally insured depository institution, federally insured credit union, Farm Credit System institution or from additional lenders authorized by the Department of Treasury, by submitting a loan application and the required supplemental documents. In evaluating a potential borrower, the lending institution will only consider whether the Non-profit Organization: (a) was in operation on March 1, 2020 and (b) paid salaries and payroll taxes during that time. An eligible Non-profit Organization must make a good faith certification to the lending institution stating that: (i) the requested loan is necessary to support operations during the adverse economic conditions resulting from the COVID-19 pandemic, (ii) the funds will be used to retain employees and maintain payroll and (iii) the Non-profit Organization has not and will not receive another loan through the PPP (only one loan is permitted) between February 15, 2020 and December 31, 2020.
If a Non-profit Organization receives a loan through PPP, it is eligible for forgiveness (cancellation) of the indebtedness based on the amount spent on the Eligible Operation Expenses. Due to the high demand, it is anticipated that the SBA will require that 75% of the forgiven indebtedness be used for payroll over the eight (8) week period commencing upon receipt of the loan (“Eight Week Period”). Forgiveness of the loan is not automatic. The Non-profit Organization will need to submit a loan forgiveness application to the servicing lender. The lender must make a decision on the forgiveness of the loan within sixty (60) days from receipt of the forgiveness application.
The loan may be forgiven up to the principal amount, but the forgiven amount may be reduced if: (a) the Non-profit Organization decreases the number of employees during the Eight Week Period. The loan forgiveness reduction is based on the following equation:
The average number of full-time employees per month for the Eight Week Period
The average number of full-time employees per month from February 15, 2019 to
June 30, 2019 or January 1, 2020 to February 29, 2020 (as such time period is
elected by the Non-profit Organization).
(b) there is a reduction in eligible employee compensation in excess of 25% of such compensation paid during the most recent full quarter period prior to origination of the loan, (c) any of the proceeds of the loan are not used for the Eligible Operation Expenses (in accordance with the required proportions), or (d) the Non-profit Organization does not provide the lender with adequate records evidencing the use of the funds; thus, it is crucial for Non-profit Organizations to keep track of the funds. It is important to note that if a Nonprofit Organization restores the reduction in employees and/or compensation by June 30, 2020, the forgiven indebtedness will not be decreased pursuant to (a) and (b) above.
Any portion of the loan that is not forgiven is subject to a two year maturity date and will continue to operate in accordance with the loan terms agreed upon by the Non-profit Organization and the lender. Last, the Cares Act provides that the forgiven debt under the PPP is excluded from gross income for purposes of the Code of 1986. Therefore, unlike other cancelled debt, the Non-profit Organization will not be required to pay income tax on the forgiven debt.
Non-profit Organizations and small businesses can apply for the SBA loans starting April 3, 2020, and independent contractors and self-employed individuals can apply starting April 10, 2020. The PPP will continue until June 30, 2020, however Non-profit Organizations should apply as soon as funds become available because there will likely be a high volume of applicants and there is a finite amount of funds allocated to the program.
Below are a few key resources to assist Non-Profit Organizations through the application process:
- Fact Sheet: https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf
- Sample Application: https://home.treasury.gov/system/files/136/Paycheck-ProtectionProgram-Application-3-30-2020-v3.pdf
- 100 Most Active SBA 7(a) Lenders: https://www.sba.gov/article/2020/mar/02/100-mostactive-sba-7a-lenders
Disclaimer: The information in this article is continuously changing and being updated. This article is for informational purposes only and does not constitute legal or business advice. Each entity, based on its specific circumstances, must determine whether to seek and secure an SBA loan. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate for all entities to seek such loans. If your religious corporation or non-profit organizations requires assistance, please contact Jodi Warren, Esq., at Jwarren@cbmslaw.com or Renato Matos, Esq., at Rmatos@cbmslaw.com.
On March 27, 2020, a $2.2 trillion economic stimulus program called the Coronavirus Aid, Relief, and Economic Security Act (as known as the “CARES Act”), was signed into law, in response to the 2020 coronavirus pandemic. The CARES Act includes provisions that are designed to provide immediate relief to, among others, certain non-profit organizations. One (1) area of note in the CARES Act, includes the expansion of section 7(a) of the Small Business Act (15 U.S.C. 636(a)) (the “Act”), known as the Paycheck Protection Program.
PAYCHECK PROTECTION PROGRAM
Under the CARES Act, the Paycheck Protection Program (“PPP”) provides for $349 billion of forgivable Small Business Administration (“SBA”) loans to qualifying businesses. One such qualifying business eligible for SBA loans are non-profit organizations that (a) are tax exempt under Section 501(c)(3) or Section 501(c)(19) of the U.S. Internal Revenue Code and (b) have less than 500 employees. This would include certain religious and charitable corporations.
Through the PPP, eligible non-profits can receive a loan of up to $10 million with an interest rate not to exceed 4%. The exact loan amount will be determined by a formula directly correlated to the payroll costs (i.e. up to 2.5 times the borrower’s average monthly, less certain excluded payroll costs). No personal guarantee is required, and no collateral needs to be pledged to secure the loan. The SBA will guarantee 100% of the loan and eligible borrowers can apply through their existing SBA lenders, qualified banks, credit unions and other lenders. Lenders will begin processing loan applications as soon as April 3, 2020.
The CARES Act also provides for grant forgiveness of the loans up to an amount equal to the following expenses paid during an eight-week period beginning on the date of the origination of the loan:
1. Payroll costs (subject to certain salary cap and other limitations);
2. Interest on mortgage obligations or other debt existing prior to Feb. 15, 2020;
3. Rent under any enforceable lease agreement prior to Feb. 15, 2020; and
4. Utilities for which service began prior to Feb. 15, 2020.
It is important to note that there are the restrictions on the amount of loan forgiveness that may be received by borrowers, including that the forgiven amount: (a) cannot exceed the loan principal and (b) will be reduced if employees are either laid off or there is a reduction in compensation during such eight-week period. However, if those employees are rehired or if their compensation is restored to the February 15, 2020 levels prior to June 30, 2020, then the forgiveness reduction penalties will not impact the business or entity.
The application can be found here, along with a fact sheet for borrowers here, provided by the U.S. Department of the Treasury. Additional information regarding the mechanics and requirements of the PPP will be released in the coming weeks.