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Published in Nonprofits

Nonprofits less likely to draw from second round of federal PPP loans

BY JOSH SPANNINGA Sunday, February 14, 2021 01:45pm

The full effect of the COVID-19 pandemic on the national economy was still largely unknown when the first round of federal Paycheck Protection Program loans was announced in late March 2020.

State governments were just beginning to issue stay-at-home orders and restrictions on local businesses. It was unclear how long these restrictions would last, as well as just how extensively regulations would affect local businesses, including nonprofits. 

COURTESY PHOTO

Nearly a year later, the economic repercussions of the pandemic are still unfolding. In ongoing efforts to ease financial stress on struggling small businesses and nonprofits, Congress approved an additional $284 billion in PPP loans in December. This includes at least $25 billion set aside for eligible borrowers with a maximum of 10 employees, or loans of up to $250,000 for eligible nonprofits in low- or mid-income neighborhoods. 

While the application window for the second round of loans is open until March 31, it is unclear how many Michigan nonprofits will benefit. 

“I honestly haven’t heard from anyone who’s been taking it,” Michelle Van Dyke, president and CEO of Heart of West Michigan United Way, said of nonprofits seeking the second PPP round. 

Heart of West Michigan United Way was approved for a $672,575 PPP loan in April 2020, which Van Dyke says “was very helpful for us to bridge the gap.” The organization will not be applying for a second draw, however, as Van Dyke says the federal funds are likely needed elsewhere. 

“While we may be able to qualify, we don’t feel like we need it. We want to make sure that the dollars are available to organizations that truly need them,” she said. 

According to research published in July from Grand Valley State University’s Dorothy A. Johnson Center for Philanthropy, nonprofits received approximately 3.7 percent of all PPP loans that were dispersed last year. In total, 181,680 nonprofits benefitted, though an estimated 452,000 nonprofits were likely eligible for PPP assistance, researchers found. 

Nonprofit barriers

Based on initial responses to the second draw, it appears even fewer nonprofits may benefit this time around. 

Joan Gustafson, external affairs officer at the Michigan Nonprofit Association, said some nonprofits aren’t applying for a second round because of a new requirement to show a 25 percent reduction in quarterly revenue in 2019 to the same period in 2020.  The MNA recieved a $255,242 loan in the first PPP round.

“Thankfully, many were able to have a record year for donations from individuals or accessed relief through some of the emergency relief grants provided by foundations,” Gustafson said. “Unfortunately, due to that, they may not be able to show a reduction in revenue. The issue is whether these funds raised and received will sustain them, and for how long.” 

Another barrier some nonprofits face is the lack of an existing relationship with banks lending the PPP loans. Smaller and minority-owned and operated nonprofits, for instance, are often less likely to have such banking relationships as larger nonprofits. Additionally, banks aren’t typically used to dealing with the nonprofit business model, experts say. 

Kyle Caldwell, president and CEO of the Council of Michigan Foundations, said banks face unique challenges when serving such a wide variety of nonprofits. CMF recieved a first-round PPP loan of $464,195.

“There was a lot of learning going on about different needs based on the size of nonprofits,” Caldwell said. “It’s a little bit different with a nonprofit human service agency with several hundred employees and what that means versus a one- or two-employee shop.”

In addition to revenue and banking barriers, the second PPP round includes new restrictions that may prevent some nonprofits from applying. For instance, in order to qualify for a second draw, nonprofits have to employ 300 people or fewer — a sharp drop from the 500-employee cap for first draw loans. 

Nonprofits applying for a second round also must have used up first-round funds on authorized expenses. If less than 60 percent of the funds previously dispersed went to employees’ payroll, that nonprofit will not qualify for a second draw. 

Arts, education nonprofits among hardest hit

Nonprofits that focus on the arts are among the organizations most affected by COVID restrictions. Unlike food banks, shelters and other human service-based organizations that may have seen an uptick in donations last year, arts nonprofits often rely on ticket sales, memberships, gift shop sales, event rentals and other similar forms of revenue that simply aren’t coming in right now. 

The Grand Rapids Public Museum is no exception. 

“It definitely hits the museum’s earned revenue, but we are seeing that people are engaging with the museum both on a limited basis in person and also digitally. We know there’s a hunger out there for the museum,” said Kate Kocienski, Grand Rapids Public Museum’s vice president of marketing and public relations. “The PPP would allow us to continue our normal operations and continue to create our educational content. So it’s really filling in that decrease in earned revenue that we’re not getting right now because we’re not operating at 100 percent.”

The Grand Rapids Public Museum was approved for a $644,000 PPP loan in April 2020 and has applied for a second loan. 

Many arts nonprofits have had to get creative to continue offering their services, which often involves boosting their online presence. The Grand Rapids Symphony, for instance, turned to streaming concerts virtually last year. While this means audiences continue benefiting from the services they offer, it still doesn’t make up for lost ticket sales. Additionally, offering streaming services and redesigning a website can be costly upgrades.

“To run a virtual operation is expensive,” Van Dyke said. “You’ve got laptops, and you’ve got instructors … it’s just a different model for these nonprofits. They continue to have challenges not just operationally, but how they deliver the services in the right way and in an efficient way to the people who need them.”

A call to Congress

Meanwhile, the Michigan Nonprofit Association has been promoting a letter drafted by the National Council of Nonprofits calling on the Biden administration to ensure nonprofits are able to receive the funds they need to continue their work. 

“Specifically, the letter calls for nonprofit-specific grants and forgivable loans for nonprofits of all sizes, an increase and extension of charitable giving incentives, full coverage of unemployment costs of reimbursing (self-insured) employers, and financial aid to state and local governments,” Gustafson said. 

Caldwell, of the Council of Michigan Foundations, says the letter addresses a critical issue. 

“The core appeal here that the nonprofit community is making is for the federal relief to understand that nonprofits are frontline human services and businesses that need unique and careful support in the CARES Act,” he said. “And wanting to make sure that they realize nonprofits are small businesses, but the nonprofit business model doesn’t allow for them to charge the customer more or to think of the other creative solutions that for-profit enterprises have.”

While PPP loans can prove crucial, they’re still one of many options local nonprofits can pursue to obtain additional funding that include grants and charitable giving. 

In order to make funding available to struggling nonprofits who may not qualify for a first or second draw PPP loan, the Council of Michigan Foundations has included a comprehensive list of various COVID-19 relief funds available across the state. 

Caldwell’s organization has “been monitoring up to 50 pooled funds” that members can access for emergency relief and that “create the funding social net we need coming in (during) the pandemic.”

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