On March 27, 2020, President Trump signed the CARES Act, which provides $2 trillion in economic relief. $349 billion of that relief package has been allocated to the Small Business Association (SBA) to support “Paycheck Protection Program” Loans (PPP Loans). These low-interest loans are partially forgivable to the extent they are used to retain employees and pay for other specified business expenses. Among other things, a borrower must be able to certify that current economic uncertainty makes the loan necessary to support ongoing operations.
Previous SBA business loans were unavailable to charter schools (and other nonprofits). According to this new legislation, these new loans will be available to any nonprofit registered as a 501(c)(3) organization with the IRS with 500 or fewer full- and part-time employees. Based on this criteria, many Georgia charter schools would qualify. The SBA has indicated that it will provide additional guidance, which may clarify the opportunities for charter schools. In the meantime, because loans are disbursed on a first come, first served basis, we recommend that charter schools who can meet the published qualifications should go ahead and apply. The SBA begins accepting applications on April 3, 2020.
Below is a summary of the PPP so you can determine if it makes sense for your charter school.
WHAT IS THE SIZE OF A PPP LOAN?
- Up to 2.5 multiplied by the average monthly payments for payroll costs incurred during the one-year period before the loan origination date, up to $10 million.
- Payroll costs include compensation to employees that is a salary, wage, commission or similar compensation; vacation, parental, family, medical, or sick leave; group health care benefits; retirement benefits; and state or local taxes on the compensation of employees. Employee compensation in excess of $100,000/year is not included.
WHAT CAN THIS FINANCING BE USED FOR?
The PPP Loan can be used for:
- Payroll costs
- Rent or mortgage interest payments
- Interest on debt obligations incurred before February 15, 2020
- Real estate improvements
- Inventory and supplies
- Working capital
- Refinancing certain outstanding debts
HOW MUCH OF THE LOAN IS FORGIVABLE?
- The principal amount of the PPP Loan used during the eight (8) week period following its origination for:
- Interest on mortgage obligations incurred before February 15, 2020
- Rent payments for leases in force before February 15, 2020; and/or
- Utility payments for service which began before February 15, 2020
- If your school has laid off employees or has decreased the compensation of any employees during the eight (8) week period, then the forgivable amount may be reduced.
WHAT ELSE SHOULD I KNOW?
- Term of the Loan: The PPP Loan matures two (2) years after the loan origination date but may be prepaid without any penalties or fees.
- Interest Rate: The interest rate is one percent (1%), and payments of principal, interest, and fees are deferred for the first six (6) months.
- No Fees: No loan fees will be collected.
- No Guarantee: Neither the school, nor any Board member or school official, is required to guarantee the PPP Loan.
- No Security: The school does not need to pledge any collateral for the PPP Loan.
HOW DO I APPLY?
- The application can be found here.
- A list of SBA Lenders are in the document attached below
We recommend you start by contacting your lender. We can also make introductions to lenders and other professionals we have relationships with who may be able to help. If you have any questions, please feel free to get in contact with either Chris Adams or Dan Alfino.