On March 27, President Donald Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act. The legislation provides many benefits to individuals and churches. The purpose of this article is to provide information solely about how EPC churches may apply for federally guaranteed loans during the COVID-19 crisis. A subsequent article will address individual benefits.
“Please note that this is our best understanding of the CARES Act on March 30,” said Jeff Jeremiah, EPC Stated Clerk. “The implementation of this program hasn’t been finalized yet, so we will continue to monitor developments related to the CARES Act as they occur and provide updates as quickly as possible.”
Q: How can my church benefit from the CARES Act?
A: The CARES Act allows for any 501(c)(3) organization with 500 or fewer employees that has been substantially affected by COVID-19 to borrow under the Small Business Administration (SBA) 7(a) program—the Paycheck Protection Program Loan. The EPC is a 501(c)(3) organization, which means all EPC churches enjoy this status.
Q: Why are EPC churches eligible for this loan program?
A: The purpose of these loans is to help small businesses to keep their workers employed and compensated through the COVID-19 crisis. This program incentivizes employers to keep their employees instead of laying them off and shutting down their businesses.
Q: When will the SBA begin taking applications for Paycheck Protection Program loans?
A: On March 29, Larry Kudlow, Director of the United States National Economic Council, announced that the SBA would begin taking applications on Friday, April 3. This date may change given the fluidity of the impact of COVID-19.
Q: What is the duration of the Paycheck Protection Program?
A: The Paycheck Protection Program covers the period beginning February 15, 2020 and ending on June 30, 2020 (the “Covered Period”).
Q: What is the loan amount a church may apply for?
A: That amount is determined by the church’s payroll and related employee expenses for the period February 15 through June 30, 2020.
Q: How much can a church or ministry borrow?
A: The amount that may be borrowed is the total average monthly payroll costs for the preceding 12 months (March 2019 through February 2020), multiplied by a factor of 2.5. For example, if the average payroll costs for the preceding twelve months were $20,000, the maximum amount of the loan would be $20,000 times 2.5 for a total of $50,000. The maximum amount available for a Payroll Protection Loan is $10,000,000.
Q: What costs are considered payroll costs?
A: Salary or wages, payments of a cash tip, vacation, parental, family, medical, or sick leave, health benefits, retirement benefits, and state and local taxes.
Q: Is there a salary maximum that the loan can cover?
A: Yes. Salary expenses above $100,000 per employee are not eligible for consideration as payroll costs. Loan proceeds may not be used to pay salaries above $100,000 per employee.
Q: Is the pastor’s housing allowance included in the computation of payroll costs?
A: The SBA needs to issue guidance on how housing allowance will factor into the payroll cost calculations.
Q: Are there any other ways in which this loan may be used?
A: The loan proceeds may also be used to pay mortgage interest (not principal) payments, rent payments, utilities, or interest on other loans outstanding at the time of the pandemic. As stated above, the total amount of the loan can be up to 2.5 times the average monthly payroll costs for the one-year period preceding the date of the loan. However, the only amount eligible for forgiveness is the total spent during the eight-week period beginning on the date of the loan on payroll costs including benefits (except for staff with salaries over $100,000), mortgage interest payments (not principal), rent, and utilities.
Q: How will the church need to document how its Paycheck Protection Program loan is used?
A: The church is required to make a “good faith certification” that the loan is necessary due to economic conditions caused by COVID-19. The church will need to demonstrate that the loan was used to retain employees, maintain payroll, and pay rent and utilities.
Q: How soon must the church, ministry, or pastor repay the loan?
A: A Paycheck Protection Program loan may include a term of up to 10 years from the date of application.
Q: What is the interest rate for a Paycheck Protection Program loan?
A: The maximum interest rate for this loan is 4 percent per year.
Q: May payments under the loan be deferred?
A: Yes, for a period not less than six months but not to exceed more than one year from the date of the loan.
Q: May all or part of the Paycheck Protection Program loan be forgiven?
A: Yes, the program is designed to encourage employers to retain employees and loan forgiveness is a key feature of these loans. A church under a covered loan can have all or a portion of the principal of the loan forgiven in an amount equal to payroll costs, mortgage interest, rent, or utility costs during the eight-week period following the origination of the loan. The forgiven amount, however, may be reduced based on a formula that compares the ministry’s employment in prior pre-COVID periods with the number of employees and each employee’s wage or salary in the eight-week period following the origination of the loan.
Q: How does my church apply for a Paycheck Protection Program loan?
A: Churches will apply for this loan through an approved SBA lender, which includes most local banks.
Q: What can the church do immediately to prepare to apply for a loan?
- Confirm the church’s bank is an approved SBA lender. If it is, inform it that the church wants to apply for a Paycheck Protection Program loan ASAP. Ask the bank to provide the church with loan document documentation requirements. The bank will assist the church in completing the application.
- Take whatever action is required for the church to apply for a Paycheck Protection Program loan (Session and/or congregational approval). Depending on local social distancing or meeting limitation regulations, this meeting may need to be virtual.
- Ensure the church’s 2019 financial statements are complete and first quarter 2020 financial statements are prepared ASAP.
Information is gleaned with appreciation from Batts, Morrison, Wales & Lee (the audit firm of the EPC), the Evangelical Council for Financial Accountability (ECFA), Horizons Stewardship, and Baptist Press of the Southern Baptist Convention, which utilized a Q&A approach in its report.