Can we use a Paycheck Protection Program loan to pay salaries of staff who are now being paid through a budget line for salaries in a contract with a governmental agency?
I don’t think anyone can give you a firm answer to that question today. In a webinar on the Families First and CARES Acts presented by the National Council of Nonprofits yesterday (April 7, 2020), the presenter said that this question had been raised with the Small Business Association, the provider of the PPP loans, but that they were unable to get an answer.
I would not use a PPP loan today to pay the salaries of people whose positions are already funded by a governmental contract. You will ultimately have to assure the governmental agency that you spent its money for the salaries you included in the budget. You will also have to show the SBA that you spent the money you received in the loan for compensation of the same employees. It will be hard to certify to both agencies that you used the money from each for the same purpose. They probably wouldn’t like your double dipping.
That doesn’t mean you shouldn’t apply for the PPP loan. You may be able to get a reallocation of your governmental program budget to use some of the salary line to expand the program in other ways and then actually use the PPP loan for those salaries. You can use the funds for other salaries or could also consider hiring new employees with the PPP loan and use the 25% that doesn’t have to be spent on salaries for other permitted overhead costs. You might be lucky to have the SBA say the loan can be used for already funded salaries, although I wouldn’t count on it.
The PPP program is intended both to provide salaries for the employees of nonprofits and small business, and also to help sustain the entities themselves. You should think creatively about how to use the PPP loan for both purposes.
Comments
I’m not sure your answer to today’s question takes into account that when a government contract funds a staff position, payment is often not made until long after the services are delivered. Maybe a year. Maybe more. So it is entirely possible that the charitable agency will have legitimate and urgent cash-flow problems, especially if demand for services is spiking (and creating non-payroll cash needs), even if the entire staff is on a guaranteed government contract. Most agencies have credit facilities to take care of payment lags in the normal course of business, but this is not a normal situation and existing credit facilities may well be exhausted.
It may be that an agency with guaranteed payroll contracts will not and should not qualify for loan forgiveness on the back end. But I don’t think that has anything to do with whether they should or will qualify for the loan program as a simple liquidity resource.
I would be happy to be wrong in my guess and your comment is a powerful argument why payment of these salaries should be permitted. Thanks. —Don Kramer
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