Nonprofits have been struggling to successfully apply for PPP Loans under the Paycheck Protection Program (PPP). PPP is the government program that provides forgivable loans to small businesses that keep their employees. Whatever the reasons, nonprofits with 500 or fewer employees are encouraged to apply. As of this writing, $125 billion remains to be distributed.
The question this blog tries to answer is: Why does this struggle exist? It seems there are at least two causes. One is the lack of guidance from the Small Business Administration (SBA), which administers the PPP. The other is inadequate business practices that are common among many nonprofits.
SBA Guidance on PPP Loans
One reason for the chaos is due to a lack of guidance from the SBA, both to would-be borrowers and to lenders. In addition, what little guidance there is constantly changes, adding to the chaos.
In part, this derives from the quick start to the program. Congress mandated that banks accept loan applications one week after the enabling legislation, the CARES Act, passed. SBA launched the program so quickly that many banks felt they did not have the guidance they needed to accept loan applications until the first round of funding was already depleted. In addition, many banks that nonprofits use were not SBA-approved lenders, thus could not offer PPP loans at all.
Making this worse for nonprofits was that some banks pushed harder to get PPP loans for their larger clients and those with outstanding loans – basically protecting the banks’ interests. As a result, smaller customers and those without outstanding loans – many of which were nonprofits – received inadequate guidance from their banks. By the time those banks processed the nonprofits’ loan applications, their allocation of PPP money had gone dry.
Nonprofit Business Practices
While many nonprofits are well run and have good financial record keeping and reporting practices, many others do not. Those nonprofits also often lack a relationship with a capable CPA. To be fair to these nonprofits, this is true for many small for-profit businesses as well. Regardless, because these nonprofits’ accounting records were not compliant with generally accepted accounting principles, they had difficultly compiling the payroll and other information required for PPP loan applications.
For some other nonprofits, the boards of directors were reluctant to approve PPP loans. At least in some cases this was due to uncertainty about the program. This is understandable but should no longer be a hinderance.
There is Still Time to Apply for PPP Loans
The initial PPP funding was fully committed within two weeks of initiation of the program. Fortunately, Congress approved additional funding on April 24, 2020. $125 billion in PPP funds is still available to qualified applicants. Nonprofit organizations that have not been able to receive funds yet should not give up. If your organization needs assistance with the PPP loan, please feel free to contact The Law Firm for Nonprofits for assistance.