With the passage of the CARES Act and the Small Business Administration’s guidance that churches and ministries are eligible to apply for Paycheck Protection Loans (and other forms of disaster relief), many churches and ministries are asking whether they should apply for government aid.
Religious Liberty Implications
Some churches question whether applying for relief will endanger their religious liberty. At this time, there are no “strings attached” to the COVID-19 aid that would endanger religious liberty. The Paycheck Protection Program is focused on keeping workers employed and there are no conditions that would endanger a religious organization’s hiring practices. The current administration also has remained committed to ensuring that religious organizations enjoy religious liberty protections. For example, in 2017, the U.S. Attorney General issued a Memorandum to all Executive Departments and Agencies establishing guidelines for the broad protection of religious liberty. Federal agencies and departments have been trending toward the protection of religious liberty and we see nothing in the Paycheck Protection Program that would cause concern from a religious liberty perspective.
Dr. Russell Moore, President of the Southern Baptist Convention’s Ethics and Religious Liberty Commission has a helpful article that analyzes the question, Do SBA-backed loans violate the separation of church and state? Dr. Moore concludes they do not and that it is permissible for churches and ministries to obtain government help during this crisis. His analysis may help your organization as it assesses this issue.
While it is always a good idea to be concerned about religious liberty and to be watchful over the government’s intrusion into the realm of the church, COVID-19 relief does not appear to raise significant religious liberty concerns that would prohibit a religious organization from applying for aid.
Financial and Accounting Implications
Simply because government aid exists does not mean that your ministry or church should obtain it without counting the cost. First, there are strict guidelines under the SBA guidance for the Paycheck Protection Program as to when a loan under the program may be forgiven. For example, the guidance states:
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
If the ministry or church does not meet the conditions for loan forgiveness, then the loan remains a loan and has a maturity of 2 years and an interest rate of 1%. It must be repaid.
Some nonprofit CPAs also suggest strict accounting rules and even suggest opening a separate bank account for any government funds received to allow for better tracking and accounting of the funds. The nonprofit accounting firm of Batts, Morrison, Wales, & Lee has a very helpful section of their website that discusses the tax and accounting implications of COVID-19 relief for churches and ministries.
Your ministry or church should not take any government aid without assessing the financial and accounting implications involved and without being prepared to comply with all the restrictions and guidelines for the program.
COVID-19 presents significant problems for many churches and religious organizations. Government aid can serve as a helpful bridge through these times if it is treated correctly. Contact the church and ministry attorneys at Provident Law if you have specific questions about your organization’s participation in government relief. We stand ready to help.