Since the publication of our previous article “Surviving Coronavirus: Emergency Intervention Guide for Non-profit and Social Impact Organizations”, we are starting to see and feel the impact of the “shelter in place” and shutdown of businesses. As the virus spreads, so does our anxiety about our health, our families and the organizations we lead and support. Those involved in the mission driven sector, especially nonprofits, are telling us they are exhausted and overloaded with things to do as well as by the effort required to navigate, understand and select what is best for them from the plethora of resources coming their way. We offer this SECOND GUIDE to help you think about and sort through what you need to do now.
In the previous article we suggested a series of actions you should take right away. Let’s do a quick check up.
The first suggestion was to get liquid. Identify and gather up all the cash you can and hoard it. This is still the number one thing we would advise. Even with the potential help from the new CARES Act signed by the President this weekend, you will need cash to make it to the point that money is in your accounts. Last night we were still suggesting that drawing down any line of credit was something that should be considered, as credit could freeze up. However, after reading all the information we could find, it seems like some of the government loans through the Small Business Association will determine eligibility based on the organization’s credit score. Drawing down your line of credit could lower your score!
Secondly, you really need to know your current financial situation. We laid out what is commonly known as a quick analysis: how much cash do you have, how much money is coming in and when, and what do you owe that must be paid. This gives you your status. Next, look at what is known as your “run rate” which tells you how much it will cost you to continue to operate: what is your current monthly payroll including benefits, what are your other fixed expenses and what are those non-recurring expenses. You really need to understand this!
The third recommendation was to start cutting your expenses to the core. This is about reducing costs, but also focusing on activities which are part of your core programs.
Next have a plan for your employees. This may be the most important thing you do for a number of reasons. One of the major goals of the federal legislation is to keep people employed and earning money that will feed the system. Retaining your employees may give you more access to loans that will be forgiven.
The last three things we recommended were:
- Consider negotiating everything from your rent, payables – both time of payment and amount, discounts with vendors, current grants and contracts and key donors.
- Stay up to date and check all the resources guides. Talk to your colleagues. Read what you can. Scan our guides. It is overwhelming and constantly changes, but stay alert.
- Make sure you are communicating with your key audiences (clients, staff, board, grantors, donors, you bank, etc) with a clear, honest message.
How are you doing with these recommendations? Do you will feel stronger and have a sense of knowing where your challenges are in a world that is out of control? Please feel free to share your experiences and learnings with us at firstname.lastname@example.org.
What you need to do this week
1. Month-end payables
a. List and categorize into:
i. Must pay in full
ii. Partial pay
iii. Can delay payment
b. Contact all in categories a.i. and a.ii. and negotiate minimum or delayed payments.
c. Negotiate any cancellation charges related to cancelled events and get refunds. Perhaps vendors will attempt to keep payments and set new dates.
d. Parse expenses to eliminate ALL that are not required. Look at small details, (eg. automated payments, subscriptions, dues, see if insurance coverage can be reduced while inactive, cleaning services, lawn services, cut supplies, etc.)
2. Make payables outlook/cash flow for April and May by week
List and categorize payables like in 1.a.
3. Contact local banks
a. Find out who will be handling SBA and coronavirus loans.
b. Talk to that person.
c. Find out what documents and information they will need. Ask for a list.
d. Start collecting that information.
4. Build revenue forecast week by week for April and May
a. Include amounts and dates of payments for services.
b. Contact major donors by phone.
i. Tell them your tentative plan.
ii. Confirm anticipated donations and dates of donations.
iii. Ask for additional funds with specific reasons — whether donation or loan (e.g. to pay payroll until relief comes through, to make lease payment, etc.)
c. Figure out additional revenue/lending sources, like mortgaging real estate, borrowing against endowment moneys, requesting donors to lift restricted dollars.
5. Read articles and outlines about the stimulus package
a. Try to understand what may be applicable to your organization and determine how it will work.
b. Collect financial and operating documents that banks, SBA, and others are listing as requirements for participation.
6. Reach out to board members, volunteers and supporters to ask for referrals to specific individuals who might volunteer to assist through this process (e.g. bank loan officers or processors, accountants, lawyers etc.)
What you need to know about CARES Act and potential financial assistance
There are three loan programs that will be available in the next few weeks for 501(c)(3) nonprofit organizations. There are a number of resources guides that can give you the details (one source that we recommend is Independent Sector) so here is a brief summary of what we know so far (there are more details that you need to know, but this is the basics) :
The three programs are:
Paycheck Protection Program
- This is for organizations with less than 500 employees.
- The application period is through June 30, 2020.
- The maximum amount you can borrow is 2.5 times your average monthly payroll cost (including benefits, state taxes and independent contractors) during the prior year or $10 million, whichever is less.
- It can be used for payroll, benefits, interest on mortgage, rent, utilities and prior debt.
- If you follow the guidelines this loan will be forgiven.
Emergency Economic Injury Loan
- This is a loan program for small businesses including nonprofits with less than 500 employees.
- These loans can go up to $10 million and no guarantees or collateral is required. Approval will be based on the organization’s credit scores.
- You must show “injury” (loss of income) due to the impact of the virus and policies around it.
- Some or most of this can be forgiven based on keeping your staff employed and paid using this money. There are formulas on how they determine this.
Treasury Industry Stabilization Loan
- This is for businesses with 500 or more employees and eligible for nonprofits.
- There is no loan forgiveness with this program.
- This also requires meeting a series of requirements in retaining staff.
- This loan is at 2% interested and can have an extended repayment period.
How to get these loans
You apply for these loans through community banks and credit unions that are qualified by the Small Business Administration (SBA). Supposedly, you can apply using the banks or credit unions loan process, however from what we learned it is not yet very clear how this works. Once they get your application they forward it to the SBA who will approve and provide a guarantee to the bank. It is said that this should take 2 weeks. Reports are that the SBA is really backed up, banks are not clear on their role or the process, so it may be a few days before the system is in place. We have talked to people in Washington DC, who have been advising on this topic, and they assured us that there is a process designed and it will work well.
What you need to do now
- First, all of us should consider applying for these loans that provide forgiveness. It is like a general operating grant that could be significant.
- The next few days may be confusing for everyone involved, however there is huge pressure to get this money out the door. So stay up to date on this process as information will be flowing out rapidly. Check the SBA website, talk to your bank (or banker) and check their website. Assign someone in your organization to make this one of their priorities if not you.
- Get your information together. Think of it as a typical loan application. Make sure you can get your financial data together while many of our offices are closed down and staff are separated. Hopefully it is all online. We may find the application is complex and requires additional efforts such as notarizing the documents, a challenging process considering the current situation.
- However this process works, it will take some time and probably more than we expect. These government loans are dependent on keeping your staff employed. You need that cash you were hoarding to support payroll until you can get these loans.
- The Paycheck Protection Program has a deadline for application until June 30, 2020 so you have some time, but obviously the sooner you get the money the better, so prepare to apply as soon as possible.
Recommended resource: Independent Sector, CARES Act: How to Apply for Nonprofit Relief Funds
For more on this topic, check the recording of our “Surviving Covid19: What should nonprofits do now?”, Thursday, April 2nd, 11 AM, PDT.
Our suggestions above are based on our general experience in non-profit management and the public information we currently have. We don’t have specific information about your organization or operations. And, as you know, economic and financial situations are changing rapidly. As such, you should not rely solely on our suggestions and should act in your own best judgment.