Over 100 of our subordinate chapters have filed for and received Payroll Protection Program loans/grants. We advised them not to, but they are not subsidiaries and have a level of autonomy. What do you believe is the likelihood that the federal government will figure out that they should not have received the funds and claw them back?
I am not sure why you think the lodges were not entitled to the funds. The eligibility requirements were minimal. A nonprofit was eligible if it had 500 or fewer employees in its own entity and its “affiliates.” In general, the Small Business Administration says affiliation exists when one organization has the power to control another, or both are under the control of a third party. (The SBA published a special rule to exempt faith-based organizations from the affiliation rules.) From your description of your relationship, it doesn’t sound as though it meets the definition of control or affiliation and I assume your lodges don’t employ more than 500 people in each one.
The second requirement was a “good faith” certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” There was a lot of concern in the early days that some nonprofits, particularly grantmakers that had substantial reserve or endowment funds, didn’t “need” the money or shouldn’t take it when small businesses were in need. In May, however, the SBA published a new question and answer (Question 46) on its Frequently Asked Questions page saying that it would give safe harbor protection to any applicant that received a loan of less than $2 million and would deem the required certification to have been made in good faith. (It noted that borrowers of more than $2 million could prove the necessity for the loan if questioned.)
The SBA said that borrowers with loans below $2 million were “generally less likely to have had access to adequate sources of liquidity than borrowers of larger loans and that the safe harbor would promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees.” SBA also noted that the safe harbor rule would enable the agency to conserve its finite audit resources. That pronouncement has largely quieted the legal issue.
This question was originally published with reference to a 501(c)(8) organization, which is not included among the types of nonprofits (501(c)(3) and 501(c)(19)) which are eligible to apply for PPP loans. The answer is accurate as to 501(c)(3)s and (c)(19)s. I apologize for the error.