The CARES Act: An Overview for Religious Organizations

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides financial aid to small businesses, nonprofits, individuals, and other organizations in response to the COVID-19 outbreak. The first round of funding became available with the law’s enactment on March 27, 2020.

Among other things, the CARES Act allowed businesses and nonprofits that employ up to 500 people to seek forgivable loans through the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program.

Demand for these small-business loans quickly outstripped supply. The U.S. Small Business Administration distributed the initial $349 billion allocated for PPP loans in just 13 days.

Congress approved an additional $310 billion for PPP loans and $60 billion for EIDL loans in late April. The $484 billion appropriations bill also included funds for hospitals and additional coronavirus testing.

Paycheck Protection Program

The Paycheck Protection Program (PPP), makes forgivable loans available to businesses and nonprofits that employ up to 500 people. Administered by the U.S. Small Business Administration, this loan may be used to cover expenses related to:

• Payroll costs
• Group health benefit expenses
• Utilities
• Rent payments
• Interest on debt
• Interest on obligations

The PPP aims to help qualifying small businesses and nonprofits continue operations and avoid layoffs through the period of disruption caused by the COVID-19 pandemic.

The program allows eligible employers to apply for a loan that is 2.5 times the employer’s average monthly payroll cost. This loan is guaranteed by the federal government. The program does not require any personal guarantees or collateral. Any portion of the loan that is not forgiven can be repaid on a five-year loan repayment schedule. 

Not only that, but the entire loan amount may be forgiven if borrowers follow the guidelines found within the CARES Act, which includes maintaining employee payrolls during the crisis. For more, read the Ministry Guide to PPP Loan Forgiveness. If you obtained a PPP loan and would like to convert it into a grant, see Applying for PPP Loan Forgiveness. 

The CARES Act allows qualifying businesses and nonprofit organizations to apply for  Economic Injury Disaster Loans (EIDL) through the U.S. Small Business Administration. Initially, this loan offered a cash advance option worth $1,000 per employee, up to $10,000. The SBA announced on July 11 that it would no longer be granting cash advances, but it would continue processing loan applications from qualifying organizations.

Funds from the EIDL may be used to:

1. Provide paid sick leave to employees unable to work due to the direct effect of COVID-19.
2. Maintain payroll to retain employees during business disruptions or slowdowns.
3. Meet increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains.
4. Pay rent or mortgage payments.
5. Repay obligations that cannot be met due to revenue losses.

The CARES Act does not require the EIDL grant of up to $10,000 to be repaid, even if the EIDL applicant is subsequently denied a loan. However, this EIDL advance grant does reduce the amount of loan forgiveness available for a Paycheck Protection Loan.

The U.S. Department of Treasury provides numerous additional resources that can answer your questions about the EIDL loan program.

EIDL Loan Applications

The Small Business Administration continues accepting new EIDL loan applications from qualified businesses. These include ministries, nonprofits, and other small businesses who qualified for funding under the CARES Act. If your ministry is interested in seeking EIDL funding, you may download an application from the SBA’s website.

Religious Freedom Questions

Some questions had been raised about a non-discrimination statement that appears on CARES Act loan application forms. The government published an Interim Final Rule on April 2, which says: "all loans the SBA guarantees pursuant to the CARES Act will be made consistent with constitutional, statutory, and regulatory protections for religious liberty, including the First Amendment to the Constitution."

The SBA issued guidance April 3 making it clear that faith-based organizations are eligible for the SBA loans provided under the CARES Act. The guidance also addresses whether there are limitations on using the funds received, First Amendment concerns, affiliation considerations, and more. On April 24, the SBA clarified that ministerial housing allowances could be included in payroll costs used to request a PPP loan or its forgiveness. See the FAQs.

Consult Legal, Financial Advisors

It is important to consider all funding options available under various laws related to COVID-19 relief, such as payroll tax deferrals, when determining whether to apply for a PPP loan. Once you receive a loan under this program, you may not be eligible for other refunds or tax credits being offered. You should consult with legal and/or financial advisors when making these decisions.

Federal Pandemic Unemployment Assistance

Many churches and related nonprofit ministries are exempt from paying into their state unemployment funds. Accordingly, their employees may not qualify for state unemployment benefits. The CARES Act addresses this issue by creating a new Pandemic Unemployment Assistance benefit. This benefit provides unemployment coverage to individuals—like many church employees—who do not qualify for state unemployment benefits. This assistance is funded by the federal government.  

To be eligible for these new benefits, a person must be available to work but be unemployed, partially unemployed, or unable to work for one of the following reasons:

1. The person has been diagnosed with COVID-19 or is displaying COVID-19 symptoms and seeking a medical diagnosis.

2. A member of the person’s household has been diagnosed with COVID-19.

3. The person is providing care for a family member or someone living in the household who has been diagnosed with COVID-19.

4. A child or other person in the household for which the individual has primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of the COVID-19 public health emergency and such school or facility care is required for the individual to work.

5. The individual is unable to reach the place of employment because of a quarantine imposed as a direct result of the COVID-19 public health emergency.

6. The individual is unable to reach the place of employment because the individual has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.

7. The individual was scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of the COVID-19 public health emergency.

8. The individual has become the breadwinner or major support for a household because the head of the household has died as a direct result of COVID-19.

9. The individual has to quit his or her job as a direct result of COVID-19

10. The individual’s place of employment is closed as a direct result of the COVID-19 public health emergency.

This unemployment benefit is not available to someone who is able to telework with pay. It’s also not available to an individual who is receiving paid sick leave or other paid leave benefits, regardless of whether the individual meets a qualification described above. 

The CARES Act provides this pandemic unemployment assistance for 39 weeks and waives the standard one-week waiting period for benefit eligibility. Funds will be allocated to the states to administer this assistance.

Individuals wanting to apply for pandemic unemployment benefits will need to check with their state unemployment offices to determine if their state provides this benefit and when applications will be available. Some states are posting updates on their unemployment websites regarding the CARES Act pandemic unemployment benefit.

Other Benefits

The CARES Act provides other benefits for qualifying employers. Some of these benefits include credits against FICA tax for employee retention, relief for reimbursing employers, recovery rebates to individuals, modifications to charitable deduction limits, and more. Read the full CARES Act text. As mentioned above, consult with legal and/or financial advisors to determine which CARES Act benefits would best suit your ministry.

Updated August 10, 2020

The information provided in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.