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Is our grant-based charity eligible for a CARES loan?

Your Legal Questions Answered

Is our grant-based charity eligible for a CARES loan?

The application form for a Paycheck Protection Program loan under the new CARES act requires us to certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations” of our organization.  We exist on foundation grants, contracts and donations. We have enough to get us through the current fiscal year ending June 30 and probably several months into next FY. But this is ALWAYS how things are for us.  Since we are not selling anything, we are not dependent on sales to keep our staff. The COVID risk for us is that foundations move their priorities elsewhere, or have less income to fund renewal grants. I do not want to take money from other organizations that need it, or to take anything that is not intended for us, but the demand for our services has taken a mighty leap upwards, and we now have to make major changes in how we deliver our services. Does that give me the "good faith" basis required to submit the PPP loan/grant request?

I think you have a good faith basis on which to apply. You have explained exactly how precarious your situation is. The consequences of the current pandemic will cause you to make major changes in your method of operation (which might cost you some money you don’t have) and could jeopardize your funding stream in just a few months.

I saw Sen. Marco Rubio (R-FL), who was one of the supporters of the PPP, on television in the last few days explaining how Congress was so eager to get these funds out to the small business and nonprofit communities. He said the original legislative proposals required specific losses in income in order to qualify, but that the specifics were eliminated because so many organizations are being hit in different ways and the Congressional purpose was to get money in the hands of employers to keep people employed. That’s not the kind of “legislative history” you could cite in a legal brief, but it does provide some insight into the way Congress would view the situation.

Even if you don’t absolutely require this loan to pay employees in the next three months, you can use it for payroll during this period and leave yourself with some cash on hand to keep them employed for a couple of months thereafter. The question asks about support for ongoing operations, not just operations in the next few months.

Monday, April 6, 2020

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