December 9, 2020

Navigating COVID-19: Forgivable SBA Loans for Non-Profits

During this extraordinary time, non-profit youth sports clubs are struggling in unprecedented ways with income disappearing and payroll and fixed costs remaining. The Federal government has stepped up and proposed a $2 trillion economic stimulus that includes $300 billion in forgivable loans (free money!) to non-profits and small businesses. The intent is to keep workers employed and organizations afloat so that we can bounce back quickly after the crisis. We’re writing this post to give clubs information they can use to be the first in line for this money.  

Here’s what we know from the latest public version of the Senate bill

  • Who’s eligible: Non-profits and small businesses with 500 or fewer employees that were operational on March 1, 2020 and who had employees it paid salaries and payroll taxes to.
  • Loan amount: take the average monthly costs over the last year of your payroll + rent/lease/mortgage + existing debt obligations and multiply that number by 4. You are eligible for a loan up that amount and no greater than $10 million.
  • Loan forgiveness: the loan will be forgiven in the amount that you use it to continue to pay payroll + rent/lease/mortgage + existing debts for the period of March 1, 2020 - June 30, 2020. There are some small caveats such as if you choose to reduce payroll or if you’re paying individuals more than $33,333 during this period.
  • Prepayment: you can repay this loan early without penalty.
  • Loan payment deferment: you can defer payments on this loan for up to a year.
  • Where to get this loan: any bank that is an SBA 7(a) lender*. The bill also provide authority to the Dept of Treasury to expand what banks can issue these loans.  

*Historically, non-profits have not been eligible for SBA 7(a) loans and we anticipate there will be a learning curve for lenders figuring out how to underwrite non-profits.

The difference between SBA Economic Injury Disaster Relief Loan Program and SBA 7(a) Loans  

You may have heard about the SBA Economic Injury Disaster Loan Program (EIDRL) which non-profits are eligible for. This is a separate program from the SBA 7(a) loans and the $300 billion in forgivable loans being legislated in Congress. There are some important differences you should be aware of:

  • EIDRL loans need to be re-paid whereas 7(a) loans under the proposed legislation will be forgiven in the amount described above
  • EIDRL loans are issued directly by the Small Business Administration whereas 7(a) loans are issued by a large network of banks. The SBA is likely already log-jammed with applicants and has limited capacity whereas the capacity of the SBA bank lenders is much larger.
  • As of this writing, the SBA has only been appropriated $1.2 billion in 2020 whereas the proposed legislation allocates $300 billion to 7(a) loans. According to the US Chamber of Commerce there are 30.2 million small businesses in the US so you’ll want to be first in line.
  • EIDRL loans are only available in states that have declared emergencies.

As more information develops, we’ll be posting more about this topic.

About Groundwork

Groundwork is the first digital banking platform for youth sports teams to help them budget, collect and spend their money transparently. We work with non-profit youth sports clubs across the country and have seen how disruptive COVID-19 has been to youth sports and our customers. Our mission during this crisis is to be a resource to help clubs and our customers navigate their way through and to see youth sports thriving once again.  

Important Note: Groundwork is not a lender. Our goal here is to help inform youth sports clubs of their options if/when this legislation passes.

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