Nonprofit organizations play a crucial role in supporting communities, providing essential services, and addressing social issues. However, during times of economic hardship, nonprofits often face financial challenges similar to those of businesses, including a decline in donations, reduced revenue from services, and increased demand for their programs. To help nonprofits weather economic downturns, governments have introduced various relief measures through stimulus bills. These provisions provide essential support to help nonprofit organizations continue their work during tough times.
In this article, we will explore how nonprofit organizations can benefit from stimulus programs, what assistance is available, and how nonprofits can access these resources.
Nonprofits are eligible for a variety of relief programs, but their eligibility depends on several factors, including the type of nonprofit, its size, and its financial needs. The U.S. government, for instance, included nonprofits in several key stimulus measures, providing funding and other forms of assistance.
Types of Nonprofits Eligible
501(c)(3) Organizations: These are charitable, religious, educational, and other nonprofit entities that qualify for tax-exempt status under section 501(c)(3) of the Internal Revenue Code. These organizations are generally eligible for most federal relief programs.
Other Tax-Exempt Entities: Nonprofits with other types of tax-exempt status, such as 501(c)(6) organizations (e.g., chambers of commerce and trade associations), 501(c)(4) organizations (social welfare organizations), and 501(c)(19) (veterans' organizations), may also qualify for some forms of relief.
Small and Medium-Sized Nonprofits: Smaller nonprofits that are independently operated and meet size thresholds may be eligible for various funding programs, including loans and grants.
There are several key stimulus programs that have provided direct assistance to nonprofits in recent years. The most notable of these is the Paycheck Protection Program (PPP), but other relief programs have also played a vital role in supporting nonprofits during economic crises.
Paycheck Protection Program (PPP)
One of the most significant stimulus programs for nonprofits during the COVID-19 pandemic was the Paycheck Protection Program (PPP). The PPP provided forgivable loans to nonprofits to help cover payroll expenses, rent, utilities, and other operational costs during periods of financial instability.
Loan Forgiveness: If a nonprofit used the loan funds to retain employees, pay payroll costs, and maintain operations, the loan could be fully forgiven.
Eligibility: Nonprofits that employed fewer than 500 workers, including full-time, part-time, and temporary employees, were eligible for the PPP. Certain larger nonprofits that met specific requirements could also qualify.
Second Draw PPP Loans: The second round of PPP funding allowed eligible nonprofits to apply for additional loans if they met certain criteria, including a reduction in revenue of 25% or more.
Employee Retention Tax Credit (ERTC)
Nonprofits were also eligible for the Employee Retention Tax Credit (ERTC), a program that offered tax incentives to encourage employers, including nonprofits, to retain employees during the pandemic.
Credit Amount: The ERTC allowed eligible nonprofits to receive a tax credit equal to a percentage of qualified wages paid to employees, up to a certain limit.
Eligibility: To qualify, nonprofits had to demonstrate a significant decline in revenue or a partial or full suspension of operations due to COVID-19.
Maximizing Benefits: Nonprofits could receive both PPP loans and the ERTC, but there were specific rules governing how these benefits could be combined.
Economic Injury Disaster Loans (EIDL)
The Economic Injury Disaster Loan (EIDL) program offered low-interest loans to small businesses and nonprofits facing economic hardship due to the pandemic.
Loan Terms: EIDL loans offered favorable terms, including low interest rates and long repayment periods (up to 30 years). Nonprofits could use the funds for operating expenses, such as rent, utilities, and payroll.
EIDL Advances: Nonprofits were eligible to receive EIDL Advances, which were grants that did not need to be repaid. These grants helped provide immediate relief during the early stages of the pandemic.
Federal and State Grants
In addition to federal relief programs, nonprofit organizations were eligible for various state-level grants and private foundation funding during the pandemic.
State Programs: Many state governments introduced their own stimulus programs to assist local nonprofits. These programs often provided grants for specific sectors (e.g., education, healthcare, and arts organizations).
Foundation Support: Many private foundations, in response to the pandemic, established emergency funds and grants to support nonprofit organizations that were struggling due to increased demand for services.
Unemployment Assistance for Nonprofit Workers
Nonprofits, like other employers, could access unemployment assistance for employees who were temporarily laid off or furloughed. While nonprofit workers are typically ineligible for state unemployment benefits, some stimulus bills expanded Pandemic Unemployment Assistance (PUA) to cover workers in nonprofit organizations.
Expanded Coverage: Through the CARES Act and subsequent legislation, self-employed individuals, gig workers, and others ineligible for regular unemployment benefits were eligible for PUA.
Navigating the available stimulus programs can be challenging for nonprofits, but there are several steps that organizations can take to access these relief measures and maximize their benefits.
Step 1: Review Eligibility Criteria
Before applying for any relief programs, nonprofits should review the eligibility requirements to determine which programs they qualify for. Each stimulus program has different criteria, so it is important to understand which provisions apply to your specific nonprofit type, size, and revenue situation.
Step 2: Gather Financial Documentation
Nonprofits will need to provide detailed financial documentation when applying for relief programs, including:
Financial statements (e.g., income statements, balance sheets)
Tax records (e.g., Form 990)
Payroll records, including IRS Form 941
Proof of revenue loss or operational disruption
Step 3: Apply for Funding
Once eligibility and documentation are determined, nonprofits can apply for relief programs through various channels:
For PPP loans, nonprofits can apply through participating banks, credit unions, or online lenders.
For EIDL loans and advances, nonprofits can apply directly through the Small Business Administration (SBA) website.
For the Employee Retention Tax Credit, nonprofits can claim the credit through their quarterly tax filings.
State and local grants may require nonprofits to apply through their state or local government websites.
Step 4: Keep Track of Deadlines and Updates
Stimulus programs may have deadlines or require periodic updates. It’s essential for nonprofits to stay informed about changes to these programs and ensure they apply before deadlines pass. Many relief programs were extended multiple times during the pandemic, so it’s critical to monitor official government communications.
While stimulus relief measures provided vital support for nonprofits, there were several challenges in accessing the aid. These challenges included:
Complicated Application Processes: Nonprofits sometimes faced difficulty navigating complex application procedures, especially when applying for loans or grants from multiple sources.
Limited Awareness: Many nonprofits were not fully aware of the programs available to them, leading to missed opportunities for funding.
Competition for Resources: Nonprofits had to compete for limited funding, especially in areas where state and local governments were also offering support to businesses and individuals.
Despite these challenges, many nonprofits successfully accessed stimulus funds and used them to continue providing essential services to their communities.
While stimulus relief provided short-term assistance, nonprofits will need long-term solutions to ensure their sustainability and resilience during future crises. Some steps for nonprofits to consider include:
Diversifying Revenue Streams: Nonprofits should explore new revenue-generating models, such as offering virtual services, launching fundraising campaigns, or developing partnerships with businesses and foundations.
Building Reserves: Establishing emergency reserves can help nonprofits withstand financial disruptions in the future.
Advocacy for Policy Support: Nonprofits can engage in advocacy efforts to ensure continued support for the nonprofit sector in future stimulus packages and policy reforms.
Stimulus programs have provided much-needed relief to nonprofit organizations during times of economic hardship, allowing them to continue supporting their communities. From the Paycheck Protection Program (PPP) to the Employee Retention Tax Credit (ERTC), nonprofits have been able to access critical financial support. However, navigating the application process and understanding the available resources can be challenging.
By reviewing eligibility, gathering necessary documentation, and staying informed about updates, nonprofit organizations can maximize the benefits of these relief measures and continue their important work. Additionally, long-term planning and policy advocacy can help ensure that nonprofits are better prepared for future challenges.
