How Your Church Can Benefit from the CARES Act Paycheck Protection Loan

by | March 30, 2020

The CARES Act – What You Need to Know

Joe Park, CEO of Horizons Stewardship, was able to talk with Jeff Watson, a licensed practicing attorney who over the past 30 years has specialized in working with business leaders on a variety of financial matters. Over the last 10 years, Jeff has been active in shaping legislation at the federal and state levels. Jeff is a successful author and sought-after national speaker.  

Watch the Interview Now

Below is a summary of the most salient points available to you for your convenience.  

Does The CARES Act benefit churches?

Yes. It applies both to churches and to ministers and pastors who are self-employed. Any organization with a Tax Identification Number, which has 500 or fewer employees, and was in business on February 15, 2020, is eligible for the loan.

What are the requirements to get a loan under the Paycheck Protection Program?

  • A good faith certification that the current economic conditions make the loan necessary to support the ongoing operations of the borrower
  • Information that the borrower was in operation on February 15, 2020
  • The borrower had employees and paid salary and benefits as of February 2020, and a certification that the funds will be used for:
    • Payroll costs
    • Paid sick, medical, or family leave
    • Mortgage interest (but not principal reduction payments)
    • Interest on other debt obligations incurred before February 15, 2020
    • Rent
    • Utilities

How does your church apply for a Paycheck Protection Program Loan? 

First, ensure your 2019 and first quarter 2020 financial statements and payroll records are up to date. Determine who you paid on a W2 or a 1099 between January 1, 2019, and March 31, 2020. SBA lenders will require these payroll tax records.

Second, locate a bank that is already an approved Small Business Administration (SBA) lender.

Third, frequently review information on the Small Business Administration website (sba.gov) as it will be subject to updates and changes.   

What are the benefits your church could receive under the Paycheck Protection Progam of The CARES Act? 

If you use the money for the approved purposes in The CARES Act within eight weeks from the loan being originated, but not later than the end of June 2020, the loan is forgivable. That means the principal and interest go away. The funds borrowed that do not qualify to be forgiven will need to be paid back over a ten-year period of time with an interest rate no greater than four percent. As a reminder, approved forgivable expenses are payroll costs, paid sick, medical or family leave, mortgage interest (not principal), interest on debt obligations incurred after February 15, 2020, rent and utilities. 

What does my church have to do to have the loan forgiven? 

A church will need to prove they used the funds provided through this program for the items specified in The CARES Act. If so, then this unique lending opportunity looks like a loan, but it performs like a grant. This should give churches confidence to apply for the funds available through the Paycheck Protection Loan as part of The CARES Act. The actual process to have a loan forgiven has not yet been provided, but it will likely be handled through your lender.

What is the impact of housing allowances? 

In Jeff’s professional opinion, based on the language in the law, housing allowances are included in the calculation of payroll costs. (See page 10 of The CARES Act.)
 

Are there restrictions on highly compensated individuals? 

Yes, compensation amount over $100,000 per individual or $8,333 per month, must be excluded. You can include up to $100,000 in compensation for highly compensated individuals.
 

What if my bank is not currently an SBA approved lender? 

There are to be provisions to expedite the process for any bank to become an SBA approved lender. But you have to be mindful of how fast this money will be disbursed. The best scenario is to find an SBA approved lender.
 

What will the application process look like? 

At the time of this interview, no specific details have been released by the SBA. Jeff suspects there will be an online portal for the application process. He states “I would encourage you to reach out to your banker daily. Also, please do not confuse the Disaster Relief Loan with the Paycheck Protection Progam Loan under The CARES Act. They are two separate things with separate requirements and deadlines. You can’t apply for both for the same business organization.”
 

What information has yet to be developed? 

Based on Jeff’s experience, he believes the loan approval will be easy, but that loan forgiveness will be tedious.  He recommends that you put these borrowed funds into a separate bank account and only disburse funds from this account for forgivable purposes.  Where practical, consider using paper checks, rather than electronic bill payments to ensure you have conclusive and easy to produce evidence of how you used the money. He shared “If you take the time to meticulously track how these funds are used, you’ll save yourself time when you need to demonstrate you qualify for the loan forgiveness provision.”
 

How do I discern who to listen to and who to avoid? 

Double down on your trusted resources. Trust the people who have been there for decades. Look to people who have read the bill, people who specialize in business lending, finance, and taxes, and people affiliated with the SBA.
 

Jeff, what do you want to say to churches right now? 

If your church can secure this loan, your employees are going to be more confident in their immediate future. Doing so will ensure your staff stays focused on ministry and your community needs. 

 

Disclaimer: Horizons Stewardship wants to encourage you to consult with your licensed tax, accounting, and legal professionals related to The CARES Act and how it specifically impacts your church. The ideas expressed in this interview are informational only and do not qualify as tax, legal, or accounting advice. 

47 Comments

  1. Avatar

    This information was greatly appreciated!

    Thank you

    Reply
    • Joe Park

      Thank you. I an glad it was helpful. Joe

      Reply
  2. Avatar

    Thank you for all the wonderful information you are providing to churches! God bless you and your ministry.

    Reply
    • Joe Park

      Thanks Jim!

      Reply
      • Avatar

        Our church has applied and we have been told by the bank that the housing allowance and income of our pastor cannot be used as it is not taxable. Any advice on this. Thank you.

        Reply
        • Joe Park

          Gail, Based on my conversations with churches, while there is a lack or clarity about housing allowance, most banks are allowing housing allowance to be included in the loan calculations. Yours is the first bank I am hearing that has not allowed the pastor’s salary to be included. Because of the lack of clarity on these issues from the Treasury and SBA, you may need to try and find another bank that will allow both the salary and housing allowance. You may have to promise to move your business to the new bank.

          Reply
    • Joe Park

      Thank you Jim.

      Reply
      • Avatar

        God bless your ministry, pertinent, detailed, and prompt information that helps us concentrate on our mission and commitment as a church.

        Reply
        • Joe Park

          Thanks you Vargas!

          Reply
    • Avatar

      When a minister is compensated above $100,000, is that a sum of housing compensation and salary? Or is it $100,000 salary and then housing is a separate issue?

      Reply
      • Joe Park

        Bette, The SBA has not published their guidelines, so this is subject to change: Jeff Watson, the attorney who I interviewed yesterday and numerous other sources are saying that you can include up to $100,000 of highly compensated persons compensation package. Jeff believes that housing allowance is to be counted in that $100,000 figure. That is consistent with other sources I am speaking with. SBA may say differently when the issue guidelines, but my hunch is they will be silent on the issue. More news as it develops. Joe

        Reply
        • Avatar

          Let’s assume my salary is $80k and my Housing Allowance is $30k. If they remain silent on this, should I include BOTH in my calculations? Or shave off $10k from the Housing amount? Obviously I’d like to include both full amounts to maximize the loan amount.

          Reply
          • Joe Park

            Based on what I have heard from a number of attorneys and CPA’s. Most suggest you can add $20,000 of your housing allowance to reach the $100,000 highly compensated restriction. You should seek counsel from your CPA, but that is my understanding.

  3. Avatar

    Excellent presentation and summary especially for those of us who don’t enjoy reading and trying to understand the nuances in the law. This is a huge help ! A couple of clarifying questions: will the costs of the statutory payroll benefits such as FICA, disability and worker’s comp be included in the payroll cost calculation? Also, I just wanted to clarify the 12-month period that should be used for the calculation: March 2019 – February 2020 or April 2019 – March 2020 or doesn’t it matter? Thank you for your help!

    Reply
    • Joe Park

      Jeanette, Because we are not a licensed to give tax or legal advice, I am going to avoid making a definitive answer to your questions. Jeff Watson, the attorney who I interviewed yesterday indicated he believed they would be included. But because we don’t yet have guidance from the SBA on how the calculations will actually work, I am considering everything subject to change until we do.

      Reply
  4. Avatar

    The interview with Attorney Jeff Watson was OUTSTANDING!!! Very informative, and straight to the point. It essentially answered every question that I had thus far.

    Thank you very much for the opportunity to see this video.

    God Bless,

    Reply
    • Joe Park

      Orlando, I am glad it was helpful. Joe

      Reply
  5. Avatar

    You mention that the loan may be easy to get but the forgiveness tedious. In my reading off other articles, it seems to be likely that you will have to prove hardship, eg, a reduction in gross receipts of 50% or more. If a church is able to sustain its giving through various methods, won’t forgiveness be complicated?
    Thanks

    Reply
    • Joe Park

      Michael, We are being careful not to provide tax or legal advice, as we are not licensed to do so. I can share that in my 20 years in banking, that the devil will be in the details and those guidelines have yet to be produced by the SBA or the Treasury Department. While the SBA has 30 days to produce them, indications are they hope to have something by the end of the week. When we get the guidance, I assume there we will be two issues, first qualifying for the loan and then qualifying for the forgiveness portion. If in fact the issued guidance requires a 50% reduction in income to qualify for the loan, then most churches would have difficulty qualifying. If the reduction in income is required only for forgiveness, then allot of churches will have secured a long-term note a very favorable rate, which they can repay quickly if not needed.

      Reply
  6. Avatar

    Great Presentation – Thank you.

    Reply
  7. Avatar

    I have read that Pastors are eligible for the payment protection loan. Is this right? And how would that work?

    Reply
    • Joe Park

      Jason, My understanding is that all W-2 and 1099 employees are eligible.

      Reply
  8. Avatar

    Missed this live, but caught up this morning. The Paycheck Protection Application is now available on line….It indicates “sample” but it will let you know what you are going to fill out. Thank you for this informative interview. Going to get started now.

    Reply
    • Joe Park

      Hi Beverly, The application was posted in Horizons Resilient Leadership Special edition last night. Horizons applied today with our bank and was told their leadership had not yet finalized what they will be asking for beyond what is in the SBA application, so expect things to vary form bank to bank as they work out details. A friend was told his application was approved yesterday and he could expect a check in two weeks. so clearly things will vary from bank to bank. Your best bet is to locate an approved SBA lender, who is already approved to process SBA loans.

      Reply
  9. Avatar

    Regarding the UTILITIES area……Are we talking about the gas, electric, water costs for the Church building? What about telephone and internet? Those as well?

    Reply
    • Joe Park

      Hi Wayne, Yes, utilities are part of the calculations. The UMC General Finance and Administration just put our a great FAQ that over these topics in detail. It will be posted on horizons.net within the hour.

      Reply
  10. Avatar

    God bless your ministry, pertinent, detailed, and prompt information that helps us concentrate on our mission and commitment as a church

    Reply
  11. Avatar

    Thank you! This was very informative

    Reply
    • Joe Park

      Thank you Lazette. More important news in tomorrows Resilient Leadership Edition.

      Reply
  12. Avatar

    Who is owner of church?

    Reply
    • Joe Park

      This a question being asked frequently. The SBA is not used to making loans to churches and non-profits and this application does not seem to have churches in mind. The best person to answer this question is your banker. Banks are giving a wide variety of answers, as they are just doing the best they can. SBA will be sending new guidance every day.

      Reply
  13. Avatar

    Will receipt of a PPP loan subject the church to all of the financial reporting and oversight typically required of a non-profit who receives federal funding (like CDBG grants?)? so for example a full professional audit, which is very expensive at least in NJ, and submission of from 990

    Reply
    • Joe Park

      Jeremy, Unless this is written into your loan documents, audits are not normally requirements for most loans. That said, you question is best asked to your banker. This plane is being built as it is being flown.

      Reply
  14. Avatar

    Is there any information in regard to part time employees? I read that you will be required to maintain the number of “full” time employees to qualify for loan forgiveness but I do not see any information on how or if that applies to part time employees. Can you offer any information on that.

    Reply
    • Joe Park

      Jane, Speak to you banker about how they want FTE’s calculated. I suspect you answer will be every 40 hours of part time workers equals one FTE (Full Time Equivalent).

      Reply
  15. Avatar

    Is there any limit on “reserve funds” which might be applied to current payroll and mortgage expenses in qualifying for the loan?

    Reply
    • Joe Park

      Your church has to certify that their is a need for you to qualify for the loan. Large reserve funds may become an issue in attempting to have the loan forgiven.

      Reply
  16. Avatar

    For what reason(s) would a church choose not to participate in these programs?

    Reply
    • Joe Park

      The main reason from churches that looked into it and decided not to apply is the need to certify that a need. Many churches continue to have strong, even above average giving. A Barna report came out today that said 36% have normal or improved giving. I have a client church that receives 85% of their income through automatic recurring giving. They have experienced a bump in giving.

      Reply
  17. Avatar

    We are working to correct our accounting records for Pastoral Housing Allowance. Currently the payroll cost is paid by check or transferred from the church bank account. The totals are not included on our Summary of Payroll records. The only documentation is the Pastor’s personal tax return. What kind of proofs do we need to include this housing allowance as part of the Pastoral pay roll cost. Your response will be appreciated. Thanks!

    Reply
    • Joe Park

      Hi Vincent, Based on my understanding of the current process, after spending the funds, you will need to apply to have your loan forgiven from your bank. You will need to provide them whatever documentation they require to feel secure. Like approving loans, I expect the actual process of having loans forgiven will be further developed as SBA provides guidance to the banks. Right now, everything is focused on approving loans. In the first webinar we did with attorney Jeff Watson (you can find it on the PPP Loan resources at horizons.net) he suggested that getting the loans would easier than having them forgiven. Based on the difficulties many have experienced getting loans, I hope not…

      Reply
  18. Avatar

    Is there any definitive guidance from SBA clarifying whether a pastor’s housing allowance can be included in the payroll calculations for the PPP application? We had included it on our application and our banker questioned it. She offered to send an inquiry and was advised “that unless it is monetized on the W3, I am not safe to count it as income.” The housing allowance is not included on the W-3 but is noted as other compensation in box 14 on my W-2. What I’ve found in searching for clarification has been statements like, “It is unclear whether housing allowance would qualify as payroll costs.”   

    Reply
    • Joe Park

      Robert, To my knowledge there is not any definitive guidance on Housing Allowance, although based on conversations I am having with churches, most banks seem to be allowing it in the calculation.

      Reply
  19. Avatar

    Our church is part of the Oklahoma Conference of the United Methodist Church. Before we apply for a PPP loan we assume that our church is stand alone and not considered a subsidiary or affiliate of the UMC for purposes of qualifying under the size restriction of 500 employees. Is that accurate to your knowledge?

    Reply
    • Joe Park

      John, Your understanding is correct bases on SBA Guidance. For the purposes of the PPP Loan, each church considered to stand alone.

      Reply

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