Get Your Loan Invoice Template for NPOs Effortlessly

Loan invoice template for NPOs

good afternoon everyone this is Linda Schecter Manley general counsel at New York State homes and community renewal and thank you for joining me today to talk about the Paycheck protection program and specifically how PPP work for nonprofit organizations prior to joining New York State homes and community renewal I worked for 18 years with lawyers Alliance for New York an organization that provides free and low-cost legal assistance to community based nonprofit organizations and so I have a great deal of experience working with nonprofits and I'm very happy to be able to talk with you about how PPP can support your organization as you are help being New Yorkers cope with the Kovach 19 pandemic PPP is a new program of the federal government of the Small Business Administration and because it is so new the rules around PPP are evolving quickly how the program is being implemented is evolving quickly and so I ask you to check back regularly with ESD and or the Small Business Administration for updates on the rules and regulations you so PPP is part of the cares Act that was signed into law by President Trump in the end of March 2020 and it's specifically designed to help nonprofits and small businesses were impacted by covert 19 to cover their payroll costs in this immediate period when businesses and nonprofits are shut down as we social distance in order to stem the spread of the disease so eligible nonprofit organizations include organizations exempt under Section 501 C 3 and 501 C 19 of the Internal Revenue Code 501 C 3 organizations are charitable education religious organizations a 501 C 19 our veterans groups so you can use the loan proceeds of a PPP loan to pay workers to pay interest on a mortgage obligation or other debt that existed prior to September prior to February 15 2020 to pay rent health insurance premiums sick or medical leave utilities and other payroll costs that your organization encouraged from February 15 20 22 June 30th 2020 the maximum loan value for a PPP loan is 10 million dollars and we'll talk about how to calculate the loan value that you're eligible for and very importantly up to eight weeks of eligible expenses that you pay from the date of your loan can be forgiven so that loan principle can be forgiven as well as interest payments accrued on those on that principle any loan amount that is not forgiven gets rolled into a two year loan term loan at one percent interest so the basics of PPP the primary objective of PPP is to cover payroll costs and and that's really something important to keep in mind as we go through the specifics of the program so PPP will provide nonprofits with loans that may be partially or fully forgiven and that are a hundred percent federally guaranteed so there's a federal guarantee behind the loan that the bank gives you PPP it relies on existing SBA loan programs increases the funds available to those programs changes the term streamlines the borrowing requirements which we'll talk about and expands the eligible lenders PPP loans do not require collateral so you don't have to pledge security behind the loan and you do not have to provide personal guarantees other requirements for SBA loans like the availability like proving whether or not credit is available from other sources do not apply to PPP loans and the application window for these loans open on April 3rd 2020 and here is a link to how you can get the application from so as we said loans can be made up to ten million dollars from participating lenders and the way you figure out what your loan value is is by calculating two and a half times your average monthly payroll costs up to a million dollars and at the end we walk I'll walk you through a mathematical example of how you do that calculation but essentially you're looking at your payroll costs over the last year dividing them by 12 and then multiplying that number by 2.5 the interest rate is 1% for a term of two years there are no fees for bars to apply there's no prepayment fee so for example if you were to take a PPP loan and then get a Foundation grant to cover that cost you could repay the loan completely with no penalty loan payments are deferred for six months you don't have to begin servicing the loan for six months thanks have the option of extending that to a full year in order to be eligible for PPP you have to have been operational on February 15 2020 the long period is from February 15 20 22 June 30th 2020 if your organization's already received an economic injury disaster loan and you choose to refinance that loan with a PPP loan the amount of your economic injury disaster loan will be added to your loan subject to the ten million dollar cap and we'll talk about the economic injury disaster loan as an alternative to PPP during this presentation and you you are eligible to apply for this loan until June 30th 2020 I would urge you however to apply for the loan as soon as possible the funds that are available while a huge amount of money 3.5 billion dollars are going to be awarded on a first-come first-served basis and we assume that there is going to be an incredible amount of demand so I urge you to apply as soon as your organization is able to put together the paperwork so what can you use PPP for as part of the loan application you're going to be required to make a good-faith certification that loan proceeds will be used for payroll costs cost related to the continuation of group healthcare benefits during periods paid sick medical or family leave and insurance premiums to pay the mortgage interest not principal but the interest on mortgages rent payments utility payments as well as interest on any debt obligation that you had prior to February 15 2020 so if your organization for example how do a revolving line of credit that was drawn on as of February 15 2020 and you can use this the PPP to pay interest on that revolving line of credit so who's eligible for PPP loan nonprofit organizations as well as small businesses but nonprofit organizations exempt under Section 501 C 3 or 501 19 of the Internal Revenue Code that have 500 employees or less or eligible both full-time and part-time employees are included in that cow in organizations that have seasonal staff so if you if your staff fluctuates during the year can calculate your number of employees based on the time period between February and June of 2019 nonprofit organizations are also subject to SBA's affiliation standards so if your if your nonprofit organization is affiliated with other entities let's say there's a parent corporation an organ etcetra corporation that runs daycare programs maybe an entity that owns an affordable housing development and an entity that provides senior services those three organizations are run and operated by a common board or a board that shares directors though yours those three organizations would be considered affiliated entities and you have to add together all of the employees in order to determine whether you come under the five hundred employee another question is what goes into calculating your payroll so payroll costs include salaries wages cash tips payment for vacation rental family medical or sick leave and group health care benefits as well as other employee related expenses Holly for most of these organizations you're not going to have cash tips but you may pay an employer share of group health benefits and that would go into your payroll cost if you have staff that earn over $100,000 annually EPP will only cover the cost of their salary up to a hundred probated over this eight-week period as if they earned $100,000 so if you have an employee that earns a hundred and fifty thousand dollars for purposes of PPP you calculate them as having earned $100,000 and PPP will cover up to eight weeks of that 100 thousand dollar salary the organization would have to figure out how to cover the rest and so the average payroll would be calculated by using one of a few calculation periods the easiest is the 12-month period prior to origination of the loan but we said for seasonal employers you may have the option of using the period either February 15 2019 through June 30th 2019 or March 1st 2019 to June 30th 2019 and for organizations that were not in business for the full year January for a full year prior to February 15 2020 you can use the payroll period January 1st 2020 through February 5th new 20 now one of the key aspects of PPP and one of the the primary reasons these loans are so attractive is that the PPP loan can be forgiven in other words in essence it can turn from a grant from a loan into a grant the Act establishes that a borrower is eligible for loan forgiveness equal to the amount spent by the borrower during the eight-week period after origination of the loan on very specific categories of expenses those categories include payroll interest on a mortgage that originated prior to 15 20 20 interest on the debt that originated part of February 15 20 20 came in on a lease or payment of a utility service amounts that are forgiven cannot exceed the value of the principle of the loan but will also include accrued interest loan proceeds that are used for any other purpose will not be forgiven and will become payable within two years at 1% interest no more than 25 percent of the loan can be forgiven if the expense let me rephrase that up to 25 percent of the value of the loan that will be forgiven can be spent on expenses other than payroll so let's just say for a moment you pay eight weeks payroll expense plus your rent payment that rent payment will be forgiven as long as it does not exceed 25% of the overall amount of the loan so if you spend 75% of the loan on payroll and 25% of the loan on rent and utilities the full value of the loan will be forgiven if you spend 70% of the loan on payroll and 30% of the loan on rent and utilities 95 percent of the loan will be forgiven that remaining 5% will be payable in two years at 1% interest and I think with when thinking about this it's really important to remember that the primary objective of PPP is to retain your employees at their current base pay so if you if you keep all your employees and you pay them up to eight weeks but payroll expenses or payroll and related expenses that amount will be forgiven if you still lay off employees after receiving PPP the amount of loan forgiveness will be reduced by the percentage decrease in the number of employees similarly if your payroll expenses paid from workers making less than a hundred thousand dollars a year annually decreases more than 25 percent loan forgiveness will be reduced by the same amount so really think about it this way if you had payroll expenses in the prior year of ten thousand dollars a month and you retain all of your staff and you continue to have payroll expenses of ten thousand a month for each of the two months after you receive the payroll the PPP loan the full amount of that loan right that or the full amount of those expenditures that twenty thousand dollars will be forgiven if you with just for easy math say you have 10 employees you pay them each a thousand dollars a month and you lay off two staff members because of of Kovach 19 because you have a reduction in services that you're providing or a reduction of funding and now your payroll expenses are eight thousand dollars a month and but you got a loan that covers ten thousand dollars a month and expenses it is possible that only sixteen thousand dollars of the loan will be forgiven because you had eight thousand dollars a month in expenses instead of the tenth if you've already laid off some staff as a result of the covert 19th of the pause in New York State and you rehire them after getting the loan you can still be forgiven for the full value of their payroll expense as long as you rehire them by June 30th 2020 if the principal amount and the full principle of the PPP loan is forgiven the bar is not responsible for a crude interest in that eight we cover period and any remainder of the loan that's not forgiven operates as a two-year term loan at 1% if you've applied for an economic injury disaster loan which we'll talk about a little bit more and you've already received that loan and want to convert to a PPP loan you were able to do that you're enable essence in essence to refinance or pay off the economic injury disaster loan with a PPP loan and then your PPP loan functions as other loans do if you took advantage of the emergency economic injury disaster loan program and got an award of up to ten thousand dollars that loan will be subtracted from the amount forgiven under the PPP program so again let's say for example you got a PPP loan in the amount of $100,000 and you received a forgivable $10,000 emergency injury economic injury disaster loan in the amount of $10,000 the amount that would be forgiven under PPP would be ninety thousand dollars and you would still need to repay that additional $10,000 so what's special about PPP for nonprofit organizations as opposed to small businesses PPP provides critical financial support for New York nonprofits during this emergency but there's there are a number of considerations that you should take into a cow before applying for organizations that have reimbursement based contracts that cover their payroll expense you have to remember that PPP is also intended to cover payroll expenses and so you're not going to be able to report both to your lender and to the government that you use that you paid the same employee their full salary using both resources so let's just say for example you have a caseworker that's a hundred percent covered under a government rap and you applied for a PPP loan I to cover among other things the payroll expense of that caseworker for this eight week period you're not going to be able to say to the government funder and to the bank that their funds were used exclusively to pay back workers right so you may need to speak with either your contract administrator at a government agency or if you have a Foundation grant covering that expense and try and receive a modification to allow you to use the PPP funds to cover payroll during this time period and use the grant from either government or from a foundation for another purpose if you have an employee who's perhaps only partially funded through a government contract you would be able to use PPP and that portion of the government contract to cover the employees salary but again you're not going to be able to apply the PPP for loan forgiveness for the portion of salary that was covered by the government contract in considering whether or not to apply for a loan and how much you want to request you really need to take into consideration the circumstances of your particular organization including updating the organization's revenue and expense productions in order to understand that the ability of the organization to repay of a loan in the event that the full amount is not forgiven may also want to review your bylaws and your governance practices to see if a board or committee resolution is necessary you should review any pre-existing loan agreements we have you have with a bank to make sure that taking on additional debt would not be an event of default under those learn agreements and there is a funding cap as I said for this program so if you think PPP is right for your organization you want to make sure that you apply as soon as you can so here are some examples about how to calculate default the loan value that you're eligible so if the organization has no employees making more than $100,000 you and your annual payroll is a hundred and twenty thousand dollars your average monthly payroll would be ten thousand dollars you multiply that average monthly payroll by two point five you get to twenty five thousand dollars and that becomes the maximum value of the loan that your organization is eligible the second example is if you have employees that make more than $100,000 so let's say your organization's annual payroll is 1.5 million dollars and the amount of the annual compensation that is paid that's over a hundred thousand dollars is $300,000 you would subtract three hundred thousand dollars from one point five million dollars and your annual eligible payroll becomes 1.2 million dollars your average monthly qualifying payroll would then be a hundred thousand dollars you multiply that by two point five and you get two hundred fifty thousand dollars and so your maximum loan value is two hundred and fifty thousand dollars so what should you be doing now you need to start collecting the data that you're going to need in order to apply for PPP and and actually probably the first thing you want to do is check with your bank and make sure that they are participating a participating SBA 7a lender and you can also check that on SBA's website because demand for this program is so large many lenders are only willing to work with pre-existing clients so you want to make sure that your bank is participating in this program so the first thing you want to do is make sure your banks participating then you need to start gathering the data you're going to make the certifications that are required for your for your employees and your payroll expenses you're going to need to figure out what your eligible expenses were for the last 12 years for wages cash tips commissions other forms of compensation healthcare benefits insurance payment for vacation parental family medical or sick leave payment for any retirement benefit payment for any state or local taxes assessed on the compensation of the employee the things that are excluded from payroll expense for compensation of over $100,000 is prorated for this period payroll taxes so the FICA portion of the paycheck does not include any compensation of an employee whose principal piece of his residence is outside of the United States and any qualified sick leave wages from which a credit is payable under either the corona with the family's first Korona response act very qualified family leave wages under the families first coronavirus response act so in other words if you have an employee who's already collecting a federal benefit as a result of one of the corona virus relief acts their payroll expense will not be counted that payroll expense will not be counted in this calculation other eligible expenses are interest on mortgage obligation so this the so that's how you calculate payroll here are the other things that you can pay with a PPP loan interest on a mortgage obligation that incurred that you incurred prior to February 15 2020 meaning the mortgage was in existence prior to February 15 2020 interest on another debt obligation that was incurred prior to February 15 2020 went on the lease payments on utilities including electricity - gasp water transportation telephone internet so those are the types of things that you can use PPP resources on and be forgiven for up to 25 percent of the value so once you are in the process of completing the application you're going to have to be ready to come to sign a good face certification and that good faith certification is gonna have to include a statement that ongoing uncertainty due to the current economic conditions is what necessitates the need for this loan request and that the loan is necessary to support ongoing operations that the borrower will use the loan requests or the loan proceeds to retain workers and maintain payroll or to make mortgage lease or utility payments that the borrower does not have an applicant application pending for a loan that would be duplicative of the purposes or the amount applied for in PP and that from February 20th 15 20 22 December 31 2020 the borrower will not be seeking a loan again for a duplicative purpose and here is a sample of the application for the PPP I just want to touch for a moment on the economic disaster a disaster injury loan program which could be an alternative to PPP and since we're expecting the need the PPP loans to be oversubscribed in other words since we're expecting that there will be more demand than there are resources to me you may want to consider an economic disaster injury loan as an alternative to PPP so these loans can be up to two million dollars of financial assistance the borrower has to be in an area covered by a disaster declaration which in New York State is the actual loan amount must be based on the economic injury suffered as a result of the disaster embarrass have to be in existence on January in January 2020 have fewer than 500 employees and most nonprofits exempt under Section 501 C for eligible whereas PPP is limited to 501 C 3 and 501 night C 19 organizations most organizations eligible under all of section 501c of the Internal Revenue Code are eligible for economic disaster injury so here are the loan parameters the maximum loan is two million dollars and the interest rate for nonprofits is 2.75 percent unlike PPP which is a two-year term loan these loans can be made for up to 30 years all payments on the economic injury disaster loans related to coronavirus will have payments deferred for up to a year up to $200,000 can be approved without a personal guarantee an approval will be based on a credit score and it may be possible that you need to produce tax returns now since nonprofits don't file tax returns the same way of business does but it's possible that your 990 will be requested borrowers do not have to prove that they could not get credit elsewhere and collateral is not required for loans of $25,000 or less for loans with more than $25,000 generally collateral will be required and I again to contrast with PPP there's no personal guarantee in a PPP loan and there's no collateral it's not yet clear whether nonprofit organizations would be asked for a personal guarantee in an economic injury disaster loan but I think it's important to note that where there is a personal guarantee then that individual is responsible for repayment of the loan in the event that the nonprofit corporation is unable to make repayment so you really have to think about it very hard whether or not you as an individual want to provide that guarantee and borrowers must allow the SBA to review tax right now there is an emergency economic disaster injury loan and applicants can receive up to ten thousand dollars in an emergency grant within three days of application through December 31 2020 and there's no obligation to repay that ten thousand dollar grant to receive it it's not necessary to have an approved economic injury disaster loan however if you are able to secure the PPP loan that ten thousand dollar grant will be subtracted from the amount of loan forgiveness that you're eligible to get under PPP so thank you so much for joining us I'm really hopeful that this was helpful to you there are FAQ frequently asked questions posted on ESDS website we will refresh those as time goes on and as we learn more about this program so I urge you to check back with the SD frequently to get updates on this program thank you