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FAQs – COVID-19 and EIDL Loans for Churches and Other Nonprofits

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Note: As of April 16, 2020, the funds for the SBA’s Payment Protection Program and Economic Injury Disaster Loan program are no longer available.To organizations that have already applied, there may be some lag time between the SBA’s announcement and individual lending institutions’ allocation of designated funds on a bank-to-bank basis. However, the SBA is neither able to accept new applications nor enroll new PPP lenders until additional funding becomes available. Approval of additional funding is expected very soon.

This guidance supplements our law firm’s April 2, 2020 webinar addressing financial assistance available through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted March 27, 2020 in response to the worldwide novel coronavirus outbreak. The Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”) program are intended to provide significant financial assistance to nonprofits, small businesses, and others facing economic harm and other risks resulting from pandemic-related conditions. The federal Small Business Administration (“SBA”) has issued FAQs dated April 3, 2020 and April 6, 2020, as referenced herein, as well as a related “Interim Final Rule.”

A.     Eligibility

Question 1: Who is eligible for PPP and EIDL loans?

Section 501(c)(3) tax-exempt organizations, including churches, other religious houses of worship, and other nonprofits are eligible for PPP loans if they have 500 or fewer employees. Section 501(c)(3) and other non-profit organizations of any size are generally eligible for the EIDL program. PPP loan applicants must have been in operation as of February 15, 2020, and EIDL applicants must have been in operation as of January 30, 2020.

Question 2: Does our church need an IRS determination letter to prove its Section 501(c)(3) tax-exempt status for the PPP and EIDL applications?

No. Per the SBA’s April 3, 2020 FAQ #3:

Churches (including temples, mosques, synagogues, and other houses of worship), integrated auxiliaries of churches, and conventions or associations of churches qualify for PPP and EIDL loans as long as they meet the requirements of Section 501(c)(3) of the Internal Revenue Code, and all other PPP and EIDL requirements. Such organizations are not required to apply to the IRS to receive tax-exempt status. See 26 U.S.C. § 508(c)(1)(A). 

If a lender requests that a church or church-affiliated entity include an IRS determination letter in its loan application, the entity should show the lender a copy of the SBA FAQs to establish that no such letter is required.

Question 3: What if my nonprofit is affiliated with other nonprofits?

Affiliation rules for nonprofit organizations do not apply if the affiliation is based on religious exercise considerations. Each entity may apply separately and will not have to aggregate employee counts with affiliates, in determining whether it meets the 500-or-fewer employee threshold. As the SBA April 3, 2020 FAQs #6 instructs:

If the connection between your organization and another entity that would constitute an affiliation is based on a religious teaching or belief or is otherwise a part of the exercise of religion, your organization qualifies for an exemption from the affiliation rules.  For example, if your faith-based organization affiliates with another organization because of your organization’s religious beliefs about church authority or internal constitution, or because the legal, financial, or other structural relationships between your organization and other organizations reflect an expression of such beliefs, your organization would qualify for the exemption. If, however, your faith-based organization is affiliated with other organizations solely for non-religious reasons, such as administrative convenience, then your organization would be subject to the affiliation rules.

Also, per SBA guidance, no documentation is required for faith-based entities qualifying for an exemption. However, entities should submit a statement with their application stating they are exempt. SBA recommends the following language be attached as an addendum to the application: 


The Applicant claims an exemption from all SBA affiliation rules applicable to Paycheck Protection Program loan eligibility because the Applicant has made a reasonable, good faith determination that the Applicant qualifies for a religious exemption under 13 C.F.R. 121.103(b)(10), which says that “[t]he relationship of a faith-based organization to another organization is not considered an affiliation with the other organization . . . if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.”

Question 4: Do the federal SBA’s monetary “size standards” apply to churches and non-profits in determining whether they qualify for PPP?

Generally, no. Nonprofits are eligible for PPP if they have either: 1) 500 employees or less, or 2) no more employees than the size standard established by the SBA for their industry. The size standard for “religious organizations” is a monetary cap on annual receipts rather than a cap based on number of employees. Therefore, the SBA size standards table is inapplicable; instead, religious organizations must have 500 employees or fewer to be eligible for PPP. See also SBA April 3, 2020 FAQs for Faith-Based Organizations, #8.[1]

B.     Applying for PPP and EIDL loans

Question 5: Where do I apply?

Through a local bank that is a qualified SBA lender or is otherwise participating in the SBA’s PPP or EIDL programs.

Question 6: Where can I find the application forms?

The PPP loan application can be found here.

The EIDL application can be found here.

Question 7: How much money can we get, and on what terms?

Applicants for PPP loans can receive up to the lesser of: 1) 2 ½ times their monthly payroll costs (using average monthly payroll costs over a 12-week period), or 2) $10 million. The SBA has set the interest rate currently at 1%, with no fees or required collateral, with loan payment obligations deferred for six months, and with the full repayment of any non-forgiven amounts due in two years. No personal liability will result for the loan, except if the loan proceeds are used for unauthorized purposes. If the loan proceeds are used for fraudulent purposes, criminal charges may result. 

Nonprofit applicants for EIDL loans can receive up to $2 million, at 2.75% interest rate and up to a 30-year term. No personal guarantee is required for loans up to $200,000. EIDL emergency grants of $10,000 can be obtained within three days of an application, with no repayment obligation. Note, however that if an organization also gets a PPP loan, then the $10,000 EIDL grant amount will be subtracted from the PPP forgiveness amount.

Question 8: How do I complete the “Owner” information, as a nonprofit applicant?

Non-profits applying for either PPP loans or the EIDL program should insert “N/A” in response to the question about “Applicant Ownership,” since nonprofit organizations do not have owners. The application should be signed by an authorized corporate officer.

Question 9: What certifications must we make?

Applicants for PPP loans must make good faith certifications, including the following: (1) the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient; (2) the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments; (3) that the applicant does not already have an application pending under the program for the same purpose; (4) the applicant has not received a loan under the existing SBA 7(a) program during the dates February 15, 2020 through December 31, 2020; (5) to the extent feasible, the applicant will purchase only American-made equipment and products; and (6) the applicant will comply, whenever applicable, with the “civil rights and other limitations in this form” (as addressed more fully below).

EIDL loan applicants must certify the truthfulness of the loan application information. Per Question 27 below, a prior version of the EIDL application contains a requirement for certification of fund use only for “secular purposes,” but the SBA has now clarified that such language is not applicable to faith-based organizations’ applications.

Question 10: What documentation must we provide?

Applicants for PPP loans must provide the good-faith certifications (question 9 above) as well as any documentation required by their lender. Applicants for PPP loan forgiveness must be ready to provide lenders with documentation verifying the number of full-time equivalent employees on the applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following the loan’s origination. Per the SBA’s FAQs issued on April 6, 2020, lenders are “expected to perform a good faith review” of such information.  Further, “[if lenders identify errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents, the lender should work with the borrower to remedy the error.” EIDL applicants will need to provide financial and organizational information as well. Nonprofit applicants thus may need to gather significant financial information about their operational expenses. Contact your lender for a complete list of required materials.

Question 11: What expenses should I count and for what time period, for purposes of the PPP and EIDL loan applications?

For the PPP, applicants can apply for up to 2.5 times their average monthly payroll costs. Such payroll costs may include the following: 1) salaries/wages paid to employees (not 1099 workers); 2) payment for vacation, parental, family, medical, or sick leave; 3) payments for group health care benefits, including premiums; 4) retirement benefits; and 5) state / local taxes assessed on employee compensation. Payroll costs do not include the following: 1) cash compensation to an individual employee in excess of $100,000 / year (prorated for the covered period, and excluding non-cash benefits such as retirement plan contributions and group health insurance premiums), 2) federal payroll taxes, 3) paid emergency sick or family leave under the Families First Coronavirus Response Act (FFCRA), or 4) compensation to employees whose principal place of residence is outside the United States.

Average monthly payroll costs may be calculated by averaging the payroll costs incurred per month during the one-year period before the date on which the loan is made or, alternatively, for calendar year 2019. Different rules apply for entities in operation less than one year. For such entities, if 2.5 times the average monthly payroll costs is greater than $10 million, the applicant can only apply for up to $10 million. 

For the EIDL, funds are available for a broader scope of expenses, so long as they relate to the applicant’s actual or anticipated economic injury resulting from COVID-19-related conditions, as addressed in Question 23 below. Note, however, that if a nonprofit receives an Economic Injury Disaster Relief loan between February 15, 2020 and June 30, 2020, that loan amount will be included in the PPP loan, effectively as a refinancing.

Question 12:  How do organizations account for part-time employees for purposes of applying for PPP loans?

In calculating an organization’s number of employees for purposes of qualifying for PPP, “employee” includes individuals employed on a full-time, part-time, or other basis. Therefore, part-time employees count towards the total to the same extent full-time employees do. However, in calculating payroll costs to determine the amount of an organization’s loan and the amount of the loan eligible to be forgiven, only the amounts paid to employees (whether full or part time) are included. See Question 11 for how to calculate average payroll costs.

Question 13: For the PPP loan application, should federal payroll taxes be included in qualifying payroll expenses?

Payroll costs do not include the employer’s share of payroll taxes, but they may include taxes imposed on an employee and required to be withheld by the employer. As set forth in the SBA’s April 6, 2020 FAQ #16:

Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.

Question 14: What about payroll expenses that are subject to ministers’ housing allowances?

These expenses are part of compensation that employers pay to their ministers; they are only separately characterized by the minister recipient. Consequently, they are includable in employers’ calculation of payroll costs in the same way and to the same extent that all compensation is includable therein.

Question 15:  Will we need to provide any collateral or personal guarantee?

No. For the PPP, lenders may not require a personal guarantee or collateral. Furthermore, applicants for EIDL loans and grants need not meet the normal SBA requirements for a personal guarantee (only for loans up to $200,000) or to have been in business at least one year. Applicants for an emergency EIDL grant (up to $10,000) must self-certify that they are an “eligible entity.” 

C.     PPP-Specific Loan Expenses and Forgiveness

Question 16: For what purposes may PPP loans be used?

Allowable uses for PPP loans include both payroll and non-payroll costs, as follows:  1) payroll costs; 2) costs for continued group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; 3) employee salaries and commissions; 4)  payments of mortgage interest (not principal); 5) rent; 6) utility payments; and 7) interest payments on other debt incurred before February 15, 2020.

Question 17: How much of a PPP loan will be forgiven?

Up to 100% of a PPP loan may be forgiven, upon the borrower’s certification of allowable expenditures and the lender’s approval. The actual amount forgiven will be for the actual amount of allowable expenses for payroll costs, rent, utilities, mortgage interest. The amount of loan forgiveness will be reduced proportionately if an employer reduces its number of employees during the eight-week period beginning on the origination date of the loan without rehiring them during that period, as compared to either February 15, 2019 through June 30, 2019, or January 1, 2020 through February 29, 2020 (as the nonprofit may select). The amount of loan forgiveness will additionally be reduced by the amount equal to any employee’s salary reduction that exceeds 25% of such employee’s salary during the most recent quarter (excluding employees making over $100,000 per year). Also, not more than 25% of the forgiven amount may be for non-payroll expenses. The amount of loan forgiveness is not considered taxable income.

Question 18: Must I spend all of the PPP loan funds received?

No. However, applicants are only entitled to loan forgiveness up to the amount of the loan spent on eligible costs. The amount of the loan not forgiven must be paid back over a maximum term of 10 years and at a maximum 4% interest rate.  

Question 19: What if some employees quit?

For purposes of calculating a decrease in an employers’ number of employees, the CARES Act does not distinguish between employees who leave voluntarily or involuntarily.  Therefore, if an employee quits and the employer does not fill the employee’s position (or otherwise maintains the status quo of total employees) during the covered eight-week period, the amount of loan forgiveness will be correspondingly reduced.

Question 20: What if some employees are currently furloughed, then come back to work later?

The CARES Act only allows for loan forgiveness based on actual payroll costs. However, when applying for reimbursement, employers can count expenses for any continued group health insurance or other employee benefit costs paid during the eight-week covered period, even if those expenses are for furloughed employees.

Question 21: How should recipients handle the PPP loan funds received?

Scrupulous record-keeping is critical. Recipients should put the loan funds received in a separate bank account, as well as follow through with careful documentation regarding how all funds are spent. The CARES Act requires substantial documentation for loan forgiveness (see Question 17 above). Therefore, recipients must keep detailed records of amounts received and expended.

Question 22:  If my organization has reserves sufficient to pay employees for a few months, can or should we still participate in PPP?

Organizations can participate in PPP if they can make the “good faith certification” required for the program. (See Question 9.) Whether a qualifying organization should participate in the PPP is a judgment call for the organization’s leadership.

D.     Specific Considerations for Economic Injury Disaster Loans (EIDLs)

Question 23:  For what purposes may EIDL loans be used?

Funds received under the EIDL program may be used based on the applicant’s declared “economic injury” related to COVID-19, such as: 1) providing paid sick leave to employees unable to work, 2) maintaining payroll to retain employees, 3) meeting increased costs of material due to supply chain disruption, 4) mortgage or lease payments, and 5) repaying obligations that cannot be met due to revenue losses. In a nutshell, any entity suffering temporary loss of revenue, layoffs, or other economic harm due to COVID-19 should qualify. An EIDL thus may be an alternative or addition to a PPP loan, subject to the following qualifications in Question 24.   

Question 24: May we apply for loans under both the PPP loan and the EIDL programs?

Yes. Generally speaking, nonprofits may apply for both PPP loans and EIDL loans. However, in that case the CARES Act contains substantial restrictions regarding how the funds may be used. If a recipient receives an EIDL loan and additionally applies for a PPP loan (during the time period from February 15 through June 30, 2020), then the recipient may not use any of the EIDL funds for any purposes for which available PPP funds could be used. Applicants could wait to apply for an EIDL loan until after the PPP program ends on June 30, 2020, and then use the funds for any purpose allowed for EIDL loans (included COVID-related essential expenses). However, funds for the EIDL program may be exhausted by that time.  

Question 25:  Are EIDL loans forgivable?

Generally, no. EIDL loans are repayable at a maximum term of 30 years and a maximum interest rate of 3.75% for small businesses and 2.75% for nonprofits.  Importantly, however, applicants may receive $10,000 within three days of applying, to be treated as an emergency grant and not subject to repayment - even if the entity’s EIDL request is ultimately denied. Note too that any entity receiving an EIDL grant while also receiving a PPP loan will have its loan forgiveness amount reduced by the amount of the EIDL grant.

E.     Religious Liberty Considerations

Question 26: Will I risk jeopardizing my organization’s religious liberty interests by applying for a PPP or an EIDL?

Generally, no. Per SBA’s April 3, 2020 FAQ #1:

[F]aith-based organizations are eligible to receive SBA loans regardless of whether they provide secular social services. That is, no otherwise eligible organization will be disqualified from receiving a loan because of the religious nature, religious identity, or religious speech of the organization.

Question 27: Must I spend PPP and EIDL funds only on “secular” purposes?

No. A prior version of the EIDL application contains a requirement for certification of fund use only for “secular purposes,” but such language is not applicable to faith-based organizations’ applications. The SBA’s April 3, 2020 FAQ #2 clarifies the matter:

The PPP and EIDL loan programs are neutral, generally applicable loan programs that provide support for nonprofit organizations without regard to whether they are religious or secular . . . the Establishment Clause does not place any additional restrictions on how faith-based organizations may use the loan proceeds received through either the PPP or the EIDL loan program. . .  In addition, the CARES Act does not impose unique burdens or limitations on faith-based organizations. In particular, loans under the program can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions. 

Question 28: What about risks to my religious liberty interests by accepting PPP and EIDL funds?

Faith-based entities receiving funds through the PPP or EIDL loan programs will not be subject to any limitations on their freedom to employ workers who align with their beliefs or on their freedom to require members of their organizations to hold certain beliefs. Per SBA’s April 3, 2020 FAQ #4:

Receipt of a loan through any SBA program does not (1) limit the authority of religious organizations to define the standards, responsibilities, and duties of membership; (2) limit the freedom of religious organizations to select individuals to perform work connected to that organization’s religious exercise; nor (3) constitute waiver of any rights under federal law. 

Simply put, a faith-based organization that receives a loan will retain its independence, autonomy, right of expression, religious character, and authority over its governance, and no faith-based organization will be excluded from receiving funding because leadership with, membership in, or employment by that organization is limited to persons who share its religious faith and practice. 

However, some nondiscrimination requirements beyond membership and employment may apply to religious entities receiving PPP or EIDL loans. For example, to the extent a religious entity makes its facilities or programs available to the general public (such as through operation of a soup kitchen or homeless shelter), the SBA’s non-discrimination provisions may apply with respect to those programs. Likewise, if a church is in the practice of making its facilities available to the public (such as to host AA meetings, Boy Scouts events, and other civic events), the church may be required to make its facilities available to all applicants, to include those that do not share the church’s beliefs. Per SBA’s April 3, 2020 FAQ #5:

Receipt of a loan through any SBA program constitutes Federal financial assistance and carries with it the application of certain nondiscrimination obligations. Any legal obligations that you incur through your receipt of this loan are not permanent, and once the loan is paid or forgiven, those nondiscrimination obligations will no longer apply. 

Consistent with certain federal nondiscrimination laws, SBA regulations provide that the recipient may not discriminate on the basis of race, color, religion, sex, handicap, age, or national origin with regard to goods, services, or accommodations offered. 13 C.F.R. § 113.3(a). But SBA regulations also make clear that these nondiscrimination requirements do not limit a faith-based entity’s autonomy with respect to membership or employment decisions connected to its religious exercise. 13 CFR § 113.3-1(h).

SBA therefore clarifies that its regulations apply with respect to goods, services, or accommodations offered generally to the public by recipients of these loans, but not to a faith-based organization’s ministry activities within its own faith community. For example, SBA’s regulations will require a faith-based organization that operates a restaurant or thrift store open to the public to serve the public without regard to the protected traits listed above. But SBA’s regulations do not apply to limit a faith-based organization’s ability to distribute food or clothing exclusively to its own members or co-religionists. [emphasis added].

The SBA’s requirements in this area should not generally prohibit churches and other faith-based non-profits from applying for loans under the PPP or EIDL programs, but such considerations warrant careful evaluation and potential consultation with legal counsel for specific issues or concerns. 

F.     Other Aspects of the PPP and EIDL

Question 29: How much money is available through PPP and EIDL, and how much has been applied for?

Congress has appropriated $349 billion for PPP and $10 billion for EIDL. It is unclear how much has been applied for so far, although many nonprofits and businesses are swiftly submitting their applications. These loan programs are extremely attractive, with significant forgivable loan amounts, self-certifications, and minimal to no loan guarantees required. Nonprofits are thus encouraged to apply as soon as possible because funds are limited and available on a “first-come, first-served” basis.

Question 30: What are the applicable deadlines?

PPP loans are available through June 30, 2020, and EIDL loans are available through December 31, 2020. Applicants are encouraged to submit their applications as soon as possible to increase the likelihood of receiving funds.

Question 31:  How do the tax credit and deferral provisions in the CARES Act relate to the PPP and EIDL?

The Employee Retention Credit (Section 2301) and the Payroll Tax Deferral (Section 2302) of the CARES Act are not available to entities that seek forgiveness for loans received under the PPP. Applicants thus should carefully choose either the loan programs or the tax relief programs.

Question 32:  What relief is available to 501(c)(4) entities?

Section 501(c)(4) entities are ineligible for PPP loans but are eligible for EIDL loans. Organizations that are primarily engaged in lobbying or political activities are ineligible for both programs. Section 501(c)(4) entities may also apply for the Employee Retention Credit (Section 2301) and the Payroll Tax Deferral (Section 2302).

Question 33: To what extent will a nonprofit’s application be subject to Freedom of Information Act (FOIA) disclosure requirements?

Payroll and most other financial data is exempt from disclosure under FOIA. However, some information will be subject to disclosure, including: names of officers and directors, names and addresses of loan recipients, type and amount of loan, and name of lender.[2]


[1] SBA FAQs for Faith-Based Organizations, dated April 3, 2020, available here.

[2] A guide to SBA FOIA information including a list of exempt and releasable information is available at this link.


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