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SBA Clarifies New Rules for Nonprofits Regarding the Paycheck Protection Program

paycheck protection program

A recent article from Venable, a law firm with a large nonprofit practice, announced that the Small Business Administration’s Paycheck Protection Program updated its guidelines, clarifying two important areas. First, the SBA explained its requirements concerning “lobbying activities” referred to in the original law. Second, the SBA verified that nonprofits eligible to apply for second-draw PPP loans will be judged by the SBA upon application to honestly meet economic uncertainty certification.

Lobbying Clarified

When the PPP loan program expanded at the end of 2020, most Section 501(c)(6) organizations became eligible to apply for this financial help. However, they had to meet specific requirements:

  • Have 300 or fewer workers
  • Lobbying comprises no more than 15% of total activities
  • Lobbying does not bring in more than 15% of total revenue
  • Lobbying costs do not exceed $1 million

However, nonprofits were left wondering exactly how the SBA defined “lobbying” to determine PPP eligibility.

The SBA has clarified that it defines “lobbying” in this instance according to the Lobbying Disclosure Act. This somewhat broad definition expands the number of nonprofits able to apply for PPP loans because organizations conducting state and local lobbying are not required to disclose those expenses. However, the SBA stipulates how PPP funds can be spent and restricts certain uses, including for funding lobbying activities.

Pre-Substantiated Economic Need

Nonprofits that can demonstrate a 25% reduction in gross revenue in any quarter in 2020 from the same quarter in 2019 may apply for a PPP loan, even if they have previously received one. The SBA officially requires certification proving organizations need the funds in order to sustain operations. However, with the PPP law currently in place, the SBA accepts this certification of need in good faith.

However, because the overall economy was in decline, the SBA accepts and assumes that nonprofits applying for PPP loans have already met the requirements for substantiating their economic need. For those nonprofits seeking first and subsequent PPP loans, especially if the total is under $2 million, this open approach is a positive sign their applications will be granted. The SBA also allows PPP loan recipients to apply for forgiveness from their loan administrators.

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