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Explainer: How your church can receive a forgivable COVID-19 loan

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April 3, 2020

What financial aid is available to churches and nonprofits affected by the COVID-19 crisis?

As part of the economic response to the COVID-19 crisis, Congress passed and President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The primary financial aid offered under this Act that is applicable to churches is the Paycheck Protection Program. This program authorizes up to $349 billion in forgivable loans to organizations to pay their employees during the ongoing pandemic.

(Note: For the sake of simplicity, this article explains how the process works for churches. But everything applicable to churches also applies to other 501c3 organizations, such as Christian private schools.)

What are the religious liberty concerns with this financial aid?

Russell Moore, ERLC president, recently addressed this question in his article, Do SBA-backed loans violate the separation of church and state? Moore wrote in response to several pastors who asked us the same question, “is a church or ministry taking advantage of newly approved government-backed Small Business Administration (SBA) loans wrong to do so? Would such a church be now a government-funded enterprise?” Moore does not think so and we’d encourage you to read his full article for why.

When can my church apply for this loan?

Churches can begin applying for the program on Friday, April 3. The deadline for submitting your application is June 30, 2020. However, because there is a funding cap, you should apply as soon as possible.

How do I apply to the program?

The application for the Paycheck Protection Program can be filled out and downloaded at this link. Once completed, you can submit the form to your Small Business Administration (SBA) participating lender. You will also need to provide your lender with payroll documentation.

How do I find an SBA participating lender?

The easiest way is to simply ask the bank which currently manages your accounts if they are participating in the program. Although the SBA is working on a web page where you can view approved lenders near you, that resource is currently not available.

How many loans can I take out under this program?

The Paycheck Protection Program can only be used to acquire one loan for your church. If you use this program, though, it may prevent your church from being eligible for the CARE Act’s delayed payroll tax provisions. (That provision allows an employer to defer paying their portion of an employee’s Social Security taxes through the end of 2020. Half of the deferred amount will be due at the end of 2021 and the other half will be due at the end of 2022.)

What can my church use the loan for?

The proceeds of the loan can be used to pay for payroll costs (including benefits) and for interest on mortgage obligations (incurred before Feb. 15, 2020); rent (under lease agreements in force before Feb. 15, 2020); and utilities (for which service began before Feb. 15, 2020).

What counts as payroll costs?

For churches, payroll costs include salary, wages, and commissions (capped at $100,000 on an annualized basis for each employee); employee benefits (including costs for vacation, parental, family, medical, or sick leave); allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit; and state and local taxes assessed on compensation.

How much money can my church borrow under this program?

The loan amount can total up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount.

This can be calculated by taking the average monthly payroll and multiplying by 2.5. For purposes of calculating “Average Monthly Payroll” on the application, you will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. If your church or organization began in 2020, the average monthly payroll may be calculated using the time period from Jan. 1, 2020 to Feb. 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.

As an example, let’s consider a church that has three employees who had total annual payroll costs in 2019 of $120,000, $75,000, and $50,000. The church’s actual average monthly payroll for 2019 would be $20,416 ($245,000 a year/12 months). But because of the $100,000 cap per employee, the allowable average monthly payroll would be $18,750. We then take that number and multiply it by 2.5. The church would thus qualify for a total loan amount of $46,875.

Does my church have to pay back the loan?

Under certain conditions, the loan is forgivable (i.e., not required to be paid back).

The loan amounts will be forgiven as long as: the loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8-week period after the loan is made; and employee and compensation levels are maintained. (Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.)

For the loan to be forgiven your church must also maintain your staff and payroll. Your loan forgiveness will be reduced if your church decreases the number of full-time employees working or decreases salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. If employees have already been furloughed or laid off, your church has until June 30, 2020 to restore your full-time employment and salary levels for any changes made between Feb. 15, 2020 and April 26, 2020.

How can my church request loan forgiveness?

The church can make such a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must then make a decision on the forgiveness within 60 days.

What are the terms and conditions of the loan?

The interest rate is fixed at 0.50%. While all payments are deferred for 6 months, interest will continue to accrue over this period. The loan is due in 24 months. There are no prepayment penalties or fees, no collateral is required, and there is no personal guarantee requirement.

As part of the loan application, your organization must also agree in good faith to each of the following: