Nonprofits Eligible for Second Round of PPP

NFP Eligibility for PPP Funding Under Recent Legislation

The recently signed Consolidated Appropriations Act, 2021 provides additional opportunities to assist nonprofit organizations through a Paycheck Protection Program Second Draw Loan or additional opportunities for PPP First Draw Loans.  In addition, the Act provided for an expansion of the employee retention credit and a new grant program for shuttered venue operators.  This article will address opportunities under the PPP program.

Who is eligible for the PPP Second Draw Loan?

Organizations that received initial PPP loans do have an opportunity to pursue additional funding through a PPP Second Draw. To be eligible for a PPP Second Draw Loan, an employer must meet the following criteria:

• The nonprofit organization employs 300 or fewer individuals,
• Experienced a 25% or more reduction in gross receipts comparing any calendar year 2020 quarter to the same quarter in 2019, and
• Fully expended any PPP Initial Draw proceeds before the PPP Second Draw funding.  It is important to note the organization is not required to have submitted an application for forgiveness.

Expansion of PPP Program

While many nonprofit organizations were not eligible for the initial PPP funding, the recent legislation expanded eligibility to include housing cooperatives, non-profit new media entities, 501(c)(6) organizations and destination marketing organizations (including destination marketing organizations established as a state or political subdivision of a state). 

Eligibility criteria for 501(c)(6) and destination marketing organizations includes:

• No more than 15% of the organization’s receipts is from lobbying,
• Lobbying activities are not more than 15% of the organization’s total activities,
• The total cost of lobbying activities did not exceed $1M during the most recent tax year ended before February 15, 2020, and
• The organization does not employ more than 300 employees.

How is a loan sized for PPP funding?

For any organization eligible for the initial (first-time) funding, the maximum loan amount is computed using the prior formula of the lesser of 2.5 X average monthly payroll or $10M.  Organizations eligible for PPP2 draws, loans are limited to the lesser of 2.5 X average monthly payroll or $2M. 

How are gross receipts defined?

The Act provides that for nonprofits, “gross receipts” ties to IRC Sec. 6033 which refers to the same basis of accounting used for Form 990 reporting purposes, regardless of whether the nonprofit organization is required to file a Form 990.  As such, gross receipts may be measured on a cash, tax or accrual basis.  However, many challenges apply since not all entities record interim financials in a manner that fully follows their annual tax reporting method.

Based on guidance thus far, gross receipts would include the following:

• Non-cash (tangible property) contributions,
• Gross amounts received from the sale of assets or investments, without reduction for cost or other basis and expenses of the sale
• Gross rental income or sale of inventory (without reduction of cost or expenses)
• Other (non-PPP) CARES Act funding
• Multi-year grants or pledges (for organizations filing on an accrual basis)

Items such as unrealized gains/losses on investments, in-kinds (donated services, free use of space or equipment) and forgiveness of initial PPP funding are excluded from gross receipts.

Expanded eligible expenses

The Act expanded the eligible expenses for borrowers under the original and revised PPP program.  Eligible expenses now include:

• Operations expenditures: payments for any business software or cloud computing service, product, or service delivery; the processing, payment, or tracking of payroll expenses; human resources, sales, and billing functions; accounting or tracking of supplies, inventory, records, and expenses.
• Property damage costs: costs related to property damage and vandalism or looting resulting from public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
• Workers protection expenses: any operating or capital expenditures to adapt business activities to comply with requirements established or guidance issued starting March 1, 2020 by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration. Examples include the purchase, maintenance, or renovation of assets that create or expand an indoor or outdoor space such as a drive-thru window, combined air pressure ventilation or filtration systems, a physical barrier to ensure social distancing, and personal protective equipment.
• Supplier costs: expenditures made to a supplier for goods that are essential to your operations at the time they are purchased and are made in accordance with a contract or purchase order that was in effect at any time before your loan’s covered period, or with respect to perishable goods, in effect before or at any time during the loan’s covered period.

In addition, payroll costs (60% of the funds from PPP loans must be spent on payroll to qualify for full forgiveness), have been expanded to include employer paid group life insurance, disability, vision, and dental insurance benefits.

With the various opportunities under the Act, it is important organizations review all to determine what may be most advantageous from a funding perspective. For more information, visit our CLA COVID Response page or contact our CLA COVID Response team for additional help.