Certain section 501(c)(6) organizations are now eligible for Paycheck Protection Program (PPP) loans under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the 2021 Act) that was signed into law on December 27, 2020.
The 2021 Act provides an additional $284 billion in funding for the PPP, which will be open through March 31, 2021. The 2021 Act also provides for a shuttered venue operator grant program and money for new Economic Injury Disaster Loan Assistance (EIDL) grants to businesses in low-income communities.
Under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Small Business Administration (SBA) has provided economic assistance to smaller businesses and organizations through PPP forgivable loans. Initially, only tax-exempt organizations with an exemption under section 501(c)(3) or (19) were eligible. They must have had at most 500 employees.
Eligibility Under the 2021 Act
Under the 2021 Act, Section 501(c)(6) organizations and repeat borrowers cannot have more than 300 employees to be able to qualify. Other conditions include the following:
- Lobbying activities cannot provide more than 15% of the organization’s receipts.
- Cost of lobbying activities cannot be more than $1 million during the most recent tax year ending by February 15, 2020.
- Lobbying activities cannot exceed 15% of total activities.
- Purpose of organization cannot be to promote or participate in a political campaign.
- The organization cannot be a professional sports league.
Public colleges and universities, exempt under section 511(a)(2)(B), may also be eligible. They must be Federal Communications Commission (FCC) license holders and use the PPP funds only to support locally-focused or emergency information.
“Destination marketing organizations” (described as quasi-governmental instrumentalities, or political subdivisions in section 501(c)) are also eligible for PPP funding under the above conditions.
Original rules still apply for first-time borrowers that are not 501(c)(6) organizations (e.g. maximum 500 employees and in operation at Feb. 15, 2020).
Loan Terms Under the Act
Similar to the first PPP allocation, the eligible costs for loan forgiveness include payroll, rent, covered mortgage interest, and utilities. In addition, the Act also makes the following potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
To be eligible for full loan forgiveness, borrowers will have to spend no less than 60% of the funds on payroll costs over a covered period of either eight or 24 weeks.
This requirement is similar to the parameters of the first PPP allocation when it stopped accepting applications in August 2020. Borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or calendar year, but the maximum loan amount has been cut from $10 million to $2 million.
If you need further information, please contact us.
Ethan Gewolb, CPA, EA | Senior Tax Manager