April 7, 2020

SBA Releases Supplemental CARES Act Guidance for Religious Institutions

Holland & Knight Alert
Nathan A. Adams IV | Jason E. Havens | Kelly L. Hellmuth

The U.S. Small Business Administration (SBA) has issued additional guidance to faith-based organizations that are considering whether to apply to participate in the CARES Act Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program (EIDL) in the form of an Interim Final Rule and an FAQ. The guidance indicates that SBA will not enforce and will propose amendments to preexisting regulations that exclude religious entities, including houses of worship, based on their religious status, such as 13 C.F.R. §§ 120.110(k) and 123.301(g). The guidance states that the only limitations on uses of the funds by faith-based organizations are the same ones that apply to all recipients of these loans and that religious institutions do not need to fear sacrificing their religious autonomy in exchange for the funds.

In particular, although the SBA application has incorporated a civil rights provision, the guidance relies upon 13 C.F.R. § 113.3-1(h) in support of the view that SBA nondiscrimination regulations do not apply to a religious institution with respect to the membership or employment of individuals of a particular religion to perform work connected with the carrying on by such institution of its religious activities. According to the guidance, churches do not need to have applied to the IRS to receive recognition of tax-exempt status to be eligible for the loans.

The guidance also addresses affiliation rules and size standards applicable to religious institutions. Affiliation due to religious teaching or beliefs, or as a result of the exercise of religion, including such a relationship to a parent or subsidiary, qualifies a religious institution for an exemption from the affiliation rules. The guidance recommends that a religious institution attach an appendix to its application indicating that it has made a reasonable good faith determination that the applicant qualifies for a religious exemption under 13 C.F.R. § 121.103(b)(10). Concerning size standards, because the size standards table lists religious organizations as only having a monetary cap on annual receipts rather than an employee-based size standard cap, the guidance says that the industry size standards table cannot be used to determine eligibility for the PPP program for religious organizations. Therefore, only the 500-employee limitation applies.

Preceding the guidance for faith-based organizations, SBA issued an interim rule that addresses many more questions about the PPP program not specific to religious institutions. Holland & Knight's Religious Institutions Team has assisted all kinds of faith-based institutions with federal funds questions, financing transactions, employment law, best practices, litigation and sustainable operations. Religious institutions submitting a PPP loan application may want to consult with church-state counsel regarding strategies to address statutory, constitutional and other lingering issues relating to the program. For more information, contact the authors.

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