Just weeks into mandatory stay-at-home orders, conference cancellations, and new laws requiring paid leave for coronavirus, many associations are wondering how to stay afloat financially. Two experts offer some tips.
Associations reeling from the economic impact of the coronavirus—from cancelled events to new sick and family medical leave requirements—are wondering what they can do to make sure their doors stay open. I spoke to two experts who offered some options.
Andrea Wilson, partner at BDO, an international accounting and tax advisory firm, said associations should look at their finances realistically and assess where they are and where they’re headed if the current trajectory holds.
“You have to ask the questions: What happens if we lose 20 percent of our funding, 30 percent, 40 percent?” Wilson said. “That way you can predict the impact on people. You know at what point we have to furlough, and you have identified in advance points when you have to act.”
How an association acts will depend on its individual finances. “I don’t think there is essentially one silver bullet for everyone,” Wilson said. “People in finance need to go through and do that contingency planning and ask questions like, Do you tap into the reserve?’”
Dipping into reserves has many variables, Wilson said, including investment allocations and expected financial need, which advisors can help the association understand. Wilson said it’s also important to understand how reserve access is structured at your association. “Does that require board approval?” she asked. “If so, how are you engaging your board throughout this process so that they are ready?”
In addition to association-based resources, the government has help. The newly passed Coronavirus Aid, Relief, and Economic Security Act offers some benefits for associations. Jeffrey Tenenbaum, an attorney specializing in nonprofit law, created a resource sheet to help organizations understand which benefits they’re eligible for.
The most lucrative portion of the CARES Act, the Paycheck Protection Program, provides loans of up to $10 million that are forgivable if spent on operating costs, including payroll, rent or mortgage, utilities, and group health premiums. PPP is available to some businesses and 501(c)(3) organizations, but Tenenbaum noted that 501(c)(6) groups are ineligible for the program.
Since some 501(c)(6) associations have related foundations that file as a 501(c)(3), I asked Tenenbaum if those associations would be able to get a little relief by applying for a PPP forgivable loan to pay foundation staff. However, Tenenbaum said that’s generally not going to work. “Most associations that have a related foundation have all the rent, mortgage, payroll, group health in one entity—and it’s the association,” he said. If those expenses are housed in the 501(c)(6), PPP can’t be used.
However, if your association is a 501(c)(6), don’t panic. ASAE and other associations are calling on Congress to add more economic relief for associations. Within the CARES Act, there are a couple of options. If you need a quick hit of cash—even if it’s not a lot—apply for the Economic Injury Disaster Loan Emergency Advance.
“That’s a $10,000 loan that does not have to be repaid if you spend it on paid leave, payroll, or paying economic obligations,” Tenenbaum said. “While it’s not huge, it’s certainly something.”
For longer term needs, look at Economic Injury Disaster Loans. “While it’s not as beneficial as the Paycheck Protection Program, most notably that the loans are not forgivable, it is still a very beneficial loan program,” Tenenbaum said. “You can get a loan up to $2 million.” The loan term is 30 years and interest rates are low: 2.75 percent for nonprofits.
In addition to the loan programs, the CARES Act also includes tax relief if an organization has not used PPP. The Employee Retention Tax Credit is a 50 percent tax credit for wages paid by the employer, up to $10,000 per employee. The CARES Act also allows employers to delay payroll taxes between now and Jan 1, 2021, and those taxes wouldn’t have to start being paid until December 2021.
Tenenbaum noted that there is concern these programs might run out of money, which is why he recommends applying as soon as possible.
What is your association doing to deal with the financial hurdles created by the coronavirus crisis? Please tell us in the comments.