New SBA Guidance on Paycheck Protection Program Helps Religious Organizations

Eliminates Affiliation Requirement for Religious Organizations

Provides FAQs Beneficial for Religious Organizations

 

April 6, 2020

Mike Batts, CPA
Michele Wales, CPA
Mike Lee, CPA
Dale Houser, CPA
Danny Johnson, CPA
Kaylyn Varnum, CPA

 

The Small Business Administration (SBA) has issued new and additional guidance on the Paycheck Protection Program (PPP) that is generally helpful to and beneficial for religious organizations.

Elimination of Affiliation Requirements for Religious Organizations

A new “interim final rule” issued by the Small Business Administration (SBA) on Friday, April 3, eliminates affiliation requirements for religious organizations whose affiliate relationships are based on religious exercise. This is huge and welcome news for many religious organizations that are affiliated with other organizations. A fundamental requirement for eligibility to participate in the Paycheck Protection Program and obtain a forgivable loan thereunder is that the borrower must have 500 or fewer employees. SBA laws and regulations require that most organizations with affiliates (as defined in the laws and regulations) must aggregate the employee counts of their affiliated organizations in determining whether a member of the affiliated group is within the 500-or-fewer employee-count threshold. The new guidance from the SBA eliminates that requirement for religious organizations where their affiliations are part of their religious exercise.

The new SBA guidance states in part:

The relationship of a faith-based organization to another organization is not considered an affiliation with the other organization under this subpart if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.

The guidance further provides that “No specific process or filing is necessary to claim the benefit of this exemption.” It indicates that an organization that might otherwise be subject to the affiliation rules were it not for this exception for religious organizations may add a statement to its application in an “Addendum A” stating the following:

The Applicant claims an exemption from all SBA affiliation rules applicable to Paycheck Protection Program loan eligibility because the Applicant has made a reasonable, good faith determination that the Applicant qualifies for a religious exemption under 13 C.F.R. 121.103(b)(10), which says that “[t]he relationship of a faith-based organization to another organization is not considered an affiliation with the other organization . . . if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.”

Also of significance is the degree of deference the guidance provides to organizations in making the determination that they are exempt from the affiliation rules. In that vein, the guidance states:

A faith-based organization seeking loans under this program may rely on a reasonable, good faith interpretation in determining whether its relationship to any other person, group, organization, or entity is exempt from the affiliation rules under this provision, and SBA will not assess, and will not require participating lenders to assess, the reasonableness of the faith-based organization’s determination.

Practical impact of this new guidance

As we see it, the guidance in this new interim final rule has the following practical effects for religious organizations:

  • It removes any doubt about whether churches and other religious organizations are eligible to participate in the Paycheck Protection Program and obtain forgivable loans thereunder.
  • It eliminates the affiliation/aggregation requirement for religious organizations whose affiliate relationships exist as part of their religious exercise.
  • It clarifies that each entity (generally defined as each organization with its own federal employer identification number (FEIN)) that is not subject to the affiliation rules can and should apply separately for a Paycheck Protection Program loan.

New FAQ Document

In a newly released FAQ document, the SBA addresses a number of common questions that religious organization leaders have had about the program. Among the more significant elements of the FAQ document are the summary descriptions below. The summary descriptions are not a substitute for the FAQ document itself. Organization leaders should read the entire document and consider its content under the advice of the organization’s legal counsel.

  1. Faith-based organizations, including houses of worship, are eligible to participate in the PPP as well as in the Economic Injury Disaster Relief Program (EIDL).

  2. The same general rules and restrictions on the use of PPP and EIDL loan funds that apply to other borrowers apply to religious organizations.

  3. Churches and their integrated auxiliaries are not required to have or obtain an IRS 501(c)(3) determination letter confirming their tax-exempt status in order to participate in the programs.

  4. Faith-based organizations will not be sacrificing their First Amendment or statutory rights if they request or receive a loan.

  5. Certain nondiscrimination provisions of federal law still apply to religious organizations that participate in the loan program – however, such requirements are applied uniquely to religious organizations.

  6. Affiliation by a religious organization with one or more other organizations does not automatically disqualify it from participation in the programs. SBA rules requiring aggregation of employee counts of certain affiliated organizations do not apply to a faith-based organization whose affiliations exist based on the faith-based organization’s religious exercise. However, if a faith-based organization’s affiliations with other organizations exist solely for non-religious reasons, such as administrative convenience, then the faith-based organization would be subject to the affiliation rules. The SBA will not assess, and will not permit participating lenders to assess, the reasonableness of a faith-based organization’s good-faith determination that the affiliation exception applies.

  7. No specific process or filing is necessary for a faith-based organization to claim exemption from the affiliation/aggregation rules. The FAQ document provides a sample statement that can be added as “Addendum A” to a loan application documenting the faith-based organization’s claim of the exemption. No listing of the organizations with which the applicant is affiliated, or description of the relationship to those organizations, is required. An applicant is not required to describe its religious beliefs.

  8. In connection with the Paycheck Protection Program, the CARES Act refers to alternative SBA size standards that may apply to organizations in certain industries in lieu of the 500-or-fewer employee count that generally applies to borrowers under the program. The alternative SBA size standards do not generally apply to religious organizations.

Our firm’s more comprehensive summary of the CARES Act has been updated to reflect the effects of this new guidance.

 

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