We are in unprecedented times, and (for most of us) the health crisis is just weeks away. However, for all of us, the financial crisis is here.
There are roughly 350,000 churches in the United States. Most are small and have a single (often part time) staff member. Some employ hundreds. However, Warren Bird of the Evangelical Council of Financial Accountability estimates that there are 1 million people on the payroll of US churches, the majority of whom are part-time, often working other jobs.
Thus, the Congress and the President included them in the most recent stimulus bill, The CARES Act (and the Paycheck Protection Program, which is part of that act), as part of a plan to avoid sudden and vast amounts of unemployment.
While this is a fluid situation, we are committed to learning more about the CARES Act in the hours and days to come.
As such, you should expect this page to be updated.
An Overview You Need to Know
We turned to trusted voices to get the best imformation we would. One particular trusted resource that we want to note is Richard Hammar, who also revised his original article at Church Law and Tax (also a part of Christianity Today) regarding the PPE. Here’s what he noted:
- The Act establishes a new US Small Business Administration loan program called the Paycheck Protection Program for small employers (including nonprofits and churches) with 500 or fewer employees to help prevent workers from losing their jobs and small businesses from failing due to economic losses caused by the COVID-19 pandemic.
- The program provides federally guaranteed loans to cover payroll and other operating expenses.
- To be eligible, the small employer must have been harmed by the pandemic between February 15, 2020, and June 30, 2020. The Act requires eligible borrowers to make a good-faith certification that:
- the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; and
- they will use the funds to retain workers and maintain payroll, lease, and utility payments.
- The program is retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls.
- Applicants can apply for this loan until June 30, 2020.
- The program provides loans of up to 250 percent of an employer’s average monthly payroll costs for the one-year period preceding the loan (excluding compensation over $100,000).
- The loan is forgiven in full if, during the eight-week period beginning when the church receives the loan, the money is spent entirely on:
- payroll costs
- group health care expenses
- interest on any mortgage obligations
- rent, including rent under a lease agreement
- interest on debt incurred before February 15, 2020
- The amount of loan forgiveness is reduced based on an employer’s reduction in workers or wages according to a formula (but declines between February 15, 2020, and April 26, 2020, do not reduce the amount of loan forgiveness if the employer returns to pre-decline levels by June 30, 2020).
- Any portion of a loan not forgiven is carried forward as an ongoing loan with a term of two years at 1 percent interest.
- The recipient applies for forgiveness through the lender.
What is Covered?
In addition, our friends at Vanderbloemen have provided some helpful resources about how the loan funds can be used to cover payroll costs, group health insurance benefits, paid sick leave, medical and insurance premiums, mortgage or rent payments, and utilities.
Furthermore, payroll costs can include:
- Salary or wages, payments of a cash tip
- Vacation, parental, family, medical and sick leave
- Health benefits
- Retirement benefits
- State and local taxes
- Limited up to $100k annual Salary/wage for each employee
What You Need to Do Now
Therefore, in light of what we do know, here are four things you need to be doing now with regard to thinking and praying through your church’s finances in this crisis.
#1 Decide if this provision is right for your church
Yes, there are many factors for pastors and church leaders to consider in applying for this loan. For some, there may be an overall principle that your church doesn’t believe in acquiring debt. For others, there may be hesitation taking any money from the local government.
Maybe, there are others, you are wondering about specific details.
Here’s what we know regarding the details. Again, a big thanks to our friends at Vanderbloemen in laying this out:
- Lenders will most likely be your current banker
- No loan payments under this program will be due for a year
- No fees are included in the loan
- Interest rate will be 1%
- You will need to certify the loan will be used for supporting ongoing operations, retaining workers, maintaining payroll, or making mortgage, lease, and utility payments
- No collateral or personal guarantees will be required
If you sense your church might not make it out of this crisis, or if you expect to be laying off staff or taking significant pay cuts during this crisis, you might want to consider this option. You should contact your bank and your accountant, as both will be needed in this process.
Some experts are saying you should do this quickly, though others are reassuring that additional funds will be made available as needed, so there is some uncertainty about the timing.
#2 Contact your local bank and let them know you want to participate in the Paycheck Protection Program from the CARES Act
This action is pretty straightforward. However, there is a possibility that your bank isn’t a participant of the CARES Act. In that case you will want to contact a larger regional bank in your area to start that conversation and process.
#3 Begin working on your spreadsheet to calculate your average payroll cost
The way this program works is for you to find your average monthly payroll costs for the last 12 months. After you find what your average monthly payroll costs are, multiply that number by 2.5.
While this includes full-time and part-time staff, we have recently learned that it does not include 1099 employees (they will have to file separately).
You should contact your accountant who is also receiving guidance about this act.
But you need to be working on that now as the bank will want to see how you’ve arrived at that number.
#4 Tell your staff that you are working on a plan
We know these are uncertain times that bring upon a heightened sense of panic and anxiety. While we know that Jesus is our ultimate hope, it still brings your staff a practical level of comfort knowing that you are working on a plan to help sustain your church (and staff) financially during this crisis.
Let me encourage you to listen to the podcast with Slingshot Group (about staff issues) and with William Vanderbloemen about staff and stimulus bill issues.
Stay tuned, as we will continue to keep you updated on this stimulus package and how it relates to church finances.
For other resources, check out:
OVERALL LOAN INFO: https://www.uschamber.com/co/start/strategy/federal-small-business-stimulus-aid-programs-guide /https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf (PDF doc - including graphics)
Loans available: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources#section-header-2(including Paycheck Protection Program)
Loan forgiveness/interest rates/etc: https://www.sba.gov/disaster-assistance/coronavirus-covid-19
Paycheck Protection Program overview, eligibility: https://www.sba.gov/funding-programs/loans/paycheck-protection-program#section-header-4