Joe Park, CEO of Horizons Stewardship, was able to talk with Jeff Watson, a licensed practicing attorney who over the past 30 years has specialized in working with business leaders on a variety of financial matters. Over the last 10 years, Jeff has been active in shaping legislation at the federal and state levels. Jeff is a successful author and sought-after national speaker.
Below is a summary of the most salient points available to you for your convenience.
Yes. It applies both to churches and to ministers and pastors who are self-employed. Any organization with a Tax Identification Number, which has 500 or fewer employees, and was in business on February 15, 2020, is eligible for the loan.
First, ensure your 2019 and first quarter 2020 financial statements and payroll records are up to date. Determine who you paid on a W2 or a 1099 between January 1, 2019, and March 31, 2020. SBA lenders will require these payroll tax records.Second, locate a bank that is already an approved Small Business Administration (SBA) lender.Third, frequently review information on the Small Business Administration website (sba.gov) as it will be subject to updates and changes.
If you use the money for the approved purposes in The CARES Act within eight weeks from the loan being originated, but not later than the end of June 2020, the loan is forgivable. That means the principal and interest go away. The funds borrowed that do not qualify to be forgiven will need to be paid back over a ten-year period of time with an interest rate no greater than four percent. As a reminder, approved forgivable expenses are payroll costs, paid sick, medical or family leave, mortgage interest (not principal), interest on debt obligations incurred after February 15, 2020, rent and utilities.
A church will need to prove they used the funds provided through this program for the items specified in The CARES Act. If so, then this unique lending opportunity looks like a loan, but it performs like a grant. This should give churches confidence to apply for the funds available through the Paycheck Protection Loan as part of The CARES Act. The actual process to have a loan forgiven has not yet been provided, but it will likely be handled through your lender.
In Jeff’s professional opinion, based on the language in the law, housing allowances are included in the calculation of payroll costs. (See page 10 of The CARES Act.)
Yes, compensation amount over $100,000 per individual or $8,333 per month, must be excluded. You can include up to $100,000 in compensation for highly compensated individuals.
There are to be provisions to expedite the process for any bank to become an SBA approved lender. But you have to be mindful of how fast this money will be disbursed. The best scenario is to find an SBA approved lender.
At the time of this interview, no specific details have been released by the SBA. Jeff suspects there will be an online portal for the application process. He states “I would encourage you to reach out to your banker daily. Also, please do not confuse the Disaster Relief Loan with the Paycheck Protection Progam Loan under The CARES Act. They are two separate things with separate requirements and deadlines. You can’t apply for both for the same business organization.”
Based on Jeff’s experience, he believes the loan approval will be easy, but that loan forgiveness will be tedious. He recommends that you put these borrowed funds into a separate bank account and only disburse funds from this account for forgivable purposes. Where practical, consider using paper checks, rather than electronic bill payments to ensure you have conclusive and easy to produce evidence of how you used the money. He shared “If you take the time to meticulously track how these funds are used, you’ll save yourself time when you need to demonstrate you qualify for the loan forgiveness provision.”
Double down on your trusted resources. Trust the people who have been there for decades. Look to people who have read the bill, people who specialize in business lending, finance, and taxes, and people affiliated with the SBA.
If your church can secure this loan, your employees are going to be more confident in their immediate future. Doing so will ensure your staff stays focused on ministry and your community needs. Disclaimer: Horizons Stewardship wants to encourage you to consult with your licensed tax, accounting, and legal professionals related to The CARES Act and how it specifically impacts your church. The ideas expressed in this interview are informational only and do not qualify as tax, legal, or accounting advice.