As the economic effects of the coronavirus deepen, the nonprofit sector faces unique organizational and financial challenges as it seeks relief and recovery.
Many nonprofits rely on federal and state grants and contracts; donations from individuals and corporations; community philanthropy and foundation support; and revenue from services, ticket sales and fundraisers. The sector is diverse, and some organizations are fragile.
Like many small businesses, nonprofits that have been forced to close because of the coronavirus are reviewing their finances and wondering how long they can survive. The $2.2 trillion CARES Act signed into law on March 27 is designed to offer a broad range of economic incentives to shuttered businesses and unemployed workers.
One of the law’s biggest provisions includes the Paycheck Protection Program, which offers loans designed to help nonprofits cover payroll, rent, mortgage interest and utility expenses that may be forgiven if certain requirements are met.
“Everyone is focused on the Paycheck Protection loans because of the time urgency of it — they are afraid of missing out,” said Dale Rietberg, an attorney who serves corporate and nonprofit clients at Varnum LLP in Grand Rapids.
Organizations that provide essential services — such as homeless shelters, food banks and nonprofit health clinics — are seeing increased demand for services and reduced financial and human resources, said Salvatore Alaimo, associate professor at Grand Valley State University’s School of Public, Nonprofit and Health Administration.
Nonprofits that rely on volunteers to reduce costs and deliver services also are under pressure. Many organizations have told those volunteers to stay at home, requiring staff to step into those roles or adjust services. For instance, Mel Trotter Ministries in Grand Rapids has suspended volunteers who normally work in the shelter’s kitchen and lead devotions.
Others continue to rely on volunteers to provide essential services, including Meals on Wheels Western Michigan to deliver meals to seniors and American Red Cross for blood donations.
“They (Meals on Wheels) still need volunteers to package and deliver the meals to homes,” Alaimo said. “The ripple effects and tentacles go far and deep. Many of them are losing volunteers, and so many rely on volunteers. If you removed the volunteers, they’d go out of business in five seconds.”
Loan eligibility
The Michigan Nonprofit Association hosted the first of several Tele-Town Halls on April 3 to explain the CARES Act and how it can benefit nonprofits. SBA lenders, nonprofit leaders, attorneys, and others are still getting up to speed on the massive legislation that is funneling federal dollars to individual states in an effort to keep businesses and nonprofits afloat.
The Paycheck Protection Program provides incentives for small businesses and nonprofits to keep workers on their payroll. Loans are available through SBA-approved lending institutions, and can be awarded to 501(c)(3) organizations with fewer than 500 employees, including faith-based organizations and churches. Applications opened on April 3, and loan forgiveness is available if all employees are kept on the payroll for eight weeks.
Specific details of the CARES Act continue to change or need clarification, but MNA officials encourage nonprofit leaders to apply for the PPP as soon as possible in case the funds run out. They recommend nonprofit executive directors consult their board chair and finance committee, and review the organization’s finances to determine if the loan makes sense.
Another benefit under the CARES Act is the employee retention tax credit, but organizations that receive a PPP loan are not eligible for the credit, Varnum’s Rietberg said. The credit is available to nonprofits that have seen a 50 percent or greater decline in gross receipts as a result of the COVID-19 crisis, or whose operations have been fully or partially suspended as a result of Gov. Gretchen Whitmer’s stay-at-home order.
Eligible organizations may qualify for a 50 percent refundable credit for qualified wages paid during the crisis, up to $10,000 paid to each employee or $5,000 in actual credit per employee.
“This benefit may be of particular value to those nonprofits that rely on earned income and have had to close their doors due to the current crisis,” Rietberg said.
In addition, nonprofits that are especially strapped for cash also can apply for Economic Injury Disaster Loans online through the SBA, but there is no loan forgiveness. EIDL loans exclude religious organizations unless they operate child care centers or food banks. Nonprofits can apply for up to $2 million through Dec. 31. The loan application is based on credit score, but it waives personal guarantees up to $200,000.
‘Don’t go silent, don’t go dark’
While economists advise businesses and nonprofits to have six to 12 months of operating expenses in reserve to help weather a crisis like this, many nonprofits have much leaner savings accounts.
Alaimo said human services nonprofits typically only have one to three months in cash reserves, which makes them fragile. He believes it will benefit nonprofits in the long run to take advantage of the Paycheck Protection Program and keep people employed if possible.
“Keeping your staff is going to help you when you ramp up again,” he said.
Benefits to keeping staff on include consistency, quality, sustainability and reduced operational costs compared to hiring and training new people. In addition, nonprofits that are closed should stay connected to clients, patrons and donors and use online tools and platforms to remain visible.
“Don’t go silent, don’t go dark,” Alaimo said. “Communicate with your people. You don’t want to lose those relationships. That social capital is the currency you’re operating on, and you don’t want to get detached from your people.”
Besides applying for grants, forgivable loans and other federal assistance, Alaimo recommends nonprofit leaders refrain from making drastic, across-the-board cuts.
“Pause and see if it’s possible to make cuts at the margins,” he said. “See where you can cut one area 2 or 3 percent and another one 15 percent. The (budget) items closely related to your mission and operations, they embody who you are and what you do.”
Many nonprofits also have endowment funds, which are considered “rainy day” funds and include restrictions. It may be necessary to tap into them or go back to donors and foundations and see if restrictions can be temporarily relaxed, Alaimo said.
Typically, foundations and private funders have specific grant requirements that dedicate resources to programs rather than operating costs.
“What I am hoping is government assistance is available, but I really hope the funding world steps up,” Alaimo said. “Now is the time. Shake those assets free, stop penny pitching. Double your funding if you need to, triple it.”
