Historic first: CARES Act brings financial relief to churches and other faith-based organizations and their employees

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Daniel P. Dalton, a religious property attorney, co-founder of Detroit-based Dalton + Tomich, and author of a new eBook about protocols for the United Methodist Church separation “What the Proposed UMC Separation Means for Your Church,” says the CARES Act, signed into law on March 27, 2020, presents unprecedented financial relief to faith-based organizations and their employees, nonprofits and small businesses, with approximately $349 billion set aside for this purpose.

“COVID 19 has brought churches to their knees for a different reason, closing ministries and non-profit service arms and hurting their ability to function at a time when they are most needed,” Dalton said. “Under the new CARES Act, faith communities now have never before available financial resources from the government, including unemployment for their employees who have been laid off or permanently displaced.”

Key components of the CARES Act as it relates to churches and other faith-based organizations:

1. The bill includes churches, nonprofits, Christian schools that are 501c3s, and small businesses. It provides loans to these organizations to help them through the time period of February 15, 2020 to June 30, 2020.

2. Employers with up to 500 employees (500 people at one location) are eligible.

3. Loan funds can be used to cover the following expenses:

• Payroll costs (salary/wages (up to $100k per employee), vacation, leaves, retirement benefits, state and local taxes)

• Group health insurance benefits, paid sick leave, medical and insurance premiums

• Mortgage or rent payments

• Utilities

• Interest on any other debt obligations that were incurred before the loan period

• Note: There is no clarification at this time on pastoral housing allowances

4. The loan amount shall be the lesser of the following:

• Total average monthly payroll costs for the preceding 12 months (March 2019 to February 2020) multiplied by 2.5 or $10,000,000 using average payroll costs for January and February 2020 multiplied by 2.5. 

5. Lenders will most likely be the current banker, who will receive funding from the Small Business Administration.

6. Loan payments under the program are not due for one year. No fees are included in the loan.

7. Organizations will need to certify the loan will be used to support ongoing operations, retain workers and maintain payroll, or make mortgage, lease, and utility payments. 

8. The full amount of the loan can be forgiven if these organizations employ the same number of people during the loan period as they did last year.

• Full-Time Equivalent Employee (FTE) (as defined in section 45R(d)(2) of 11 the Internal Revenue Code of 1986)

• The goal of this loan is for 2020 FTEs to be equal to or greater than 2019 FTEs, comparing February 15, 2020 to June 30, 2020 with February 15, 2019 to June 30, 2019.

• Those with fewer employees in 2020 than in 2019 need to complete a calculation:

average FTEs per month in 2020 from February 15, 2020-June 30, 2020 divided by

average FTEs per month in 2019 from February 15, 2019-June 30, 2019 to determine the amount of the total loan that will be required to pay back

• If wages of any employee are reduced by 25%, that amount will be excluded from forgiveness.

9. Unlike most small business loans, no collateral or personal risks or guarantees will be required by board members, trustees, or owners. 

10. Funds that are not forgiven have a loan maturity of 10 years. While the interest rate of this loan is unknown at this time, given that the repayment will be spread over 10 years, the church or nonprofit’s monthly payment to repay the loan will be very low.

Dalton notes that the relief from the CARES Act comes at a time when the nation may be on the cusp of the greatest evangelical movement in more than 50 years.

“As with September 11, once this crisis is over, it is expected there will be renewed interest in one’s faith, with people returning to — or seeking out — a church or faith-based organization at numbers we haven’t seen in generations,” Dalton said. “Another factor is the anticipated denominational splits from the United Methodist Church, which are certain to fuel additional growth of evangelical mega-churches. The resources provided through the CARES Act now will keep many churches afloat while we wait for a return to normalcy - and what may be the largest growth spurt in the evangelical church’s history.”  




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