For one nonprofit, getting a relief loan through the Paycheck Protection Program was a boon — but it came with risks.
Nonprofit Finance Fund, a 501(c)3 nonprofit and community development financial institution, or CDFI, received a PPP loan of about $2.1 million, CEO Antony Bugg-Levine said in an interview. CDFIs are government-designated lenders that provide financial assistance to distressed or underserved communities and borrowers and can receive direct funding through a fund set up by the U.S. Treasury.
NFF used its PPP loan for payroll, which allowed it to remain focused on its mission of funding other nonprofits.
"This program came along at a time that really enabled us to focus on delivering on our social mission, which is to make loans available to organizations and provide support for them in other ways, rather than having to focus on cutting costs," said Bugg-Levine. "Without the PPP loan we certainly would've been in a position to reduce staff, and we didn't have to."
While nonprofits were not excluded from the PPP, the loan application was designed for businesses, making the process difficult. And uncertainty around the criteria for a loan to be forgiven has many nonprofits worried their loans will not transform into grants, leaving them on the hook for principal and interest. Even if a nonprofit's PPP loan becomes a grant, that could discourage state and federal grants from offering it the funding it typically receives, nonprofit executives and consultants said.
NFF worked with PNC Financial Services Group Inc., the second-largest lender of PPP loans over $150,000 to nonprofits by total number, and said it was a good experience. But there remains some question as to whether or not NFF's loan will be forgiven, a concern shared by for-profit small businesses across the U.S.
All told, more than 41,000 PPP loans of $150,000 or more were made to nonprofits through June 30, with nine banks each making 500 loans or more.
Despite the potential for the loan not to be forgiven, NFF said taking the PPP was still a good decision.
"It's going to be the cheapest debt you have on your books and that's worth something as well," said Bugg-Levine.
Larger nonprofits were more easily able to obtain PPP loans, said Brett Theodos, senior fellow and director of the Community Economic Development Hub at the Urban Institute, a nonprofit research organization. If nonprofits had difficulty documenting financials, or did not have an established relationship with a bank, they were shut out.
"It was very dependent on your relationship with your bank, and so that tended to skew toward the larger, more established nonprofits," said Regina Birdsell, President and CEO of the Southern California Center for Nonprofit Management.
Nonprofits that worked with community banks, credit unions or CDFIs tended to have better experiences, Birdsell said, particularly in the second round of the program.
One example of the challenge for nonprofits came on the application form, which included an "ownership" field, said Ketsia Saint-Armand, an associate at NFF. Since nonprofits do not have owners the way small businesses do, some struggled to even complete the form.
"There was that additional layer of difficulty of nonprofits navigating the modified SBA 7a process, which really existed to serve small businesses and not nonprofit organizations, and trying to fit their financials into that form and explain their financial story in a way that the banks could understand," said Saint-Armand. The 7a loan is one of the SBA's more commonly used small-business loans. It normally excludes nonprofits but was expanded to include them for the PPP.
But overall, nonprofits got a sense of emotional support from being included in the program, said NFF's Bugg-Levine. "It just enabled people to feel hopeful," he said. The sector is a major employer, with 12.3 million workers in 2016, about 10% of U.S. private sector employment at the time, according to a Bureau of Labor Statistics report.
"We pumped a lot of money through PPP to nonprofits," said the Urban Institute's Theodos. "[PPP is] bigger than we get from other programs and not to be dismissed."
Nonprofits often receive much of their funding from state and local governments, creating additional confusion around the PPP.
Some states may deny nonprofits additional state funding if they received PPP loans, Bugg-Levine said. This could be burdensome for nonprofits since PPP is specific on what it will cover, while state funds may cover non-payroll costs. If nonprofits lose their government funding, either due to PPP restrictions or from lower tax bases, they may have to close.
"Keeping employees on may not help the long-term survivability of the enterprise," Theodos said.
The unexpected length of the pandemic has also made nonprofits more afraid of taking loans like the PPP instead of waiting on grants, said Birdsell.
"Organizations initially were very enthusiastic about PPP, but as the economic story got darker, there was more caution about any loans, and that's where there was much more interest in grants and forgivable loans, where the terms were easier to comply with," said Birdsell, who is expecting about 20% or more of nonprofits to close during the recession.
Without the access to capital markets that for-profit companies would use, nonprofits may struggle to pay back PPP loans if they are not forgiven or if there are clawbacks.
"All nonprofits are really looking over their shoulder," said Theodos.
