Nonprofits find rough going with SBA’s COVID-19 relief programs

April 20-26, 2020

By Daily Record Staff 


As Congress considers a possible sequel to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, there is growing sentiment in the nonprofit sector that much more is needed to aid charities on the frontline of relief efforts to provide services for needy individuals and families.


On April 9, a national coalition of charitable organizations and foundations led by the National Council of Nonprofits urged Congress to take additional steps immediately to include a “nonprofit track” in any future legislation to bolster the $2.2 trillion stimulus package.


And although the 880-page law approved by Congress on March 27 includes provisions that provide some 501 © 3 organizations with a measure of relief, the national coalition is asking U.S. lawmakers to expand nonprofit access to credit by designating funding exclusively for charities.


“The CARES Act provided some much-needed relief for America’s nonprofits – but it did not go far enough to meet the country’s increasing reliance on nonprofits helping people in local communities,” said Tim Delaney, president and CEO of the National Council of Nonprofits. “While most nonprofits are small businesses, the CARES Act lumped them into loan programs and processes designed for small for-profit businesses, resulting in nonprofits being disadvantaged by old forms and attitudes that too often exclude nonprofits.”


For one, Delaney said the national group that includes such organizations as the American Heart Association, Goodwill Industries, United Way Worldwide and Habitat for Humanity is requesting Congress to provide incentives to private lenders to prioritize processing of applications of small nonprofits. The group, which does not have a chapter in Arkansas, also asks lawmakers to expand the eligibility for nonprofits to participate in the popular Paycheck Protection Program (PPP), which launched on April 3. 


The CARES Act also allows the Treasury Department and Federal Reserve to roll-out a Mid-Size Business Loan Program to support small business owners and nonprofit employers with between 500 and 10,000 employees, including loan forgiveness and other provisions. 


Under this $500 billion bailout program yet to be implemented, there is a $46 billion fund administered by the Treasury Secretary to provide direct loans for a short list of distressed, industry-specific and essential companies, including air carriers and businesses critical to maintaining national security. The remaining $454 billion in leftover funds will be available to programs or facilities established by the Federal Reserve to support lending to states, municipalities, and eligible businesses, including mid-sized nonprofits.


“Congress needs to encourage people to give today by letting them take a tax deduction on their 2019 taxes due by the new tax date of July 15 and extend it through 2021 because the recovery is going to take more than one year,” said Delaney. “Congress’s recognition of the nonprofit sector as the economic engine that it is – employing 12.3 million Americans, which is more than manufacturing or construction – was a good first step, but more is needed to ensure nonprofits exist so they can continue serving their communities through the duration of this crisis, the recovery and for many years to come.”


As noted by Delaney, the PPP programs provides forgivable loans up to $10 million to small businesses left financially distressed by the COVID-19 pandemic. The program, which will be administered at the local level by a network of banks and credit unions, is designed to maintain the viability of millions of small businesses struggling to meet payroll and day-to-day operating expenses.


The SBA-backed loans are being provided to small businesses without collateral requirements, personal guarantees, SBA fees, or credit elsewhere tests. The PPP maximum loan amount is $10 million with a fixed 1% interest rate and maturity of two years. Under the CARES Act, the SBA has also expanded its economic injury disaster loans (EIDL) program that provides an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19.


“These loans will bring immediate economic relief and eight weeks of financial certainty to millions of small businesses and their employees,” SBA Administrator Carranza said following the April 3 launch of the program. “We urge every struggling small business to take advantage of this unprecedented federal resource – their viability is critically important to their employees, their community, and the country.”


Those eligible for the program include small businesses, certain non-profits, self-employed individuals, independent contractors, and other businesses meeting size standards based on their industry. Those “certain nonprofits” include 501© 3 organizations and veteran-run, 501(c)(19) charities that employ less than 50O workers. 


Despite SBA backing, Arkansas banks, lenders turning away applicants for COVID-19 assistance


However, since banks in Arkansas and across the U.S. began accepting PPP applications in Arkansas, the program has backlogged due to an onslaught of more than 3 million applications that has cause slow approval for the much-needed financial assistance. 


“The process has been too slow. The SBA does not have enough capacity to process the number of applications,” said Remix Ideas CEO Benito Lubazibwa, who organization is assisting women and minority-owned nonprofits and entrepreneurs with their SBA applications for COVID-19 assistance.


During a Remix Ideas-sponsored virtual conference call on April 13 to discuss the SBA lending programs, Lubazibwa and Deborah Temple with statewide nonprofit Communities Unlimited, cited several examples of women- and black-owned firms that will likely go out of business because they have not been able to access the billions of dollars targeted for small business enterprises.


Temple is director of lending for Communities Unlimited, a statewide Community Development Financial Institution (CDFI) that has over $16 million in assets and has made over $45 million in loans to small rural communities and small businesses in 24 states. 


“In mid-March, our clients were 40% to 70% down on their sales,” said Temple. “So, our first step has been to issue deferments to everybody that needed it, and almost everybody did. And, at the same time we were working with SBA with everybody else to understand the stimulus, so we have worked really hard to help every client take advantage of everything in the (bill).”


Temple said Fayetteville-based Communities Unlimited, which serves mostly poor rural communities across Arkansas, Alabama, Louisiana, Oklahoma, Missouri, Mississippi, Tennessee and Texas, has set up a special COVID-19 portal to help the agency’s clients navigate the SBA emergency relief programs.


“We have not had much luck with the PPP because we reached out to a lot of banks to help people to bring people to them, but they don’t want them because they have more applications than they can handle,” she said.


Meanwhile, the Women’s Foundation of Arkansas (WFA) is awaiting word on its application submitted the first day the PPP and EIDL program were rolled out nationally nearly two weeks ago. WFA Executive Director Anna Beth Gorman said although her agency’s board of directors were originally unsure if the local nonprofit was eligible for CARES Act assistance, she researched the PPP program and decided to “go out on a limb” and apply.


“We got our application in on the day the application (period) opened. I had a relationship with bank so they got me the application that they were going to use, so I was notified last week that our full application had been approved but I have yet to see that money come through and I have yet to sign any paperwork,” said Gorman.


Once those funds are available, Gorman said her foundation will use the low-interest forgivable loan to keep a staff of three full-time and three contract workers on payroll. She added that some nonprofits that don’t have a relationship with an SBA-lending institution or bank and limited access to other capital options may not be able to make it through several weeks of social distancing and stay-at-home policies.


“I advocate and educate people about the fact that women, particularly women of color, have traditional challenges and disadvantages of accessing capital,” said Gorman. “And now, do we not only have that disadvantage, but we also have the disadvantage of social capital. If we don’t have social capital in these relationships with lending institutions, then where we can get on the fast track because this money is first come, first serve.”   


In October, Gorman’s agency launched a new statewide initiative called SAVE10 with the goal of urging women to bolster their savings to stave off debt and invest for retirement. She the massive nationwide rollout of the COVID-19 programs has exposed “systemic inequities” in the traditional financial lending model.


Gorman said before applying for the SBA loan, her organization was considering makes cuts in personnel and operations. Although WFA will likely cut back on some ongoing project because the revenue streams and donations are not as robust during the coronavirus spread, the PPP funds will help the agency weather the storm without job losses.


“But there are going to be nonprofits that won’t survive this, and there are going to be nonprofits that look different after this, and then there are going to be merger of nonprofits that have aligned with other folks and they will come on the other side of it and they will be some larger (organizations) that have brought in smaller ones that were struggling,” she said.