CARES Act: Low- or No-Cost Lending Programs for Charter Schools

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Some charter schools may be struggling with how to meet current expenses to maintain ongoing operations. The CARES Act, the third and most recent federal relief package, makes two low- or no-cost lending programs available through the Small Business Administration (SBA); these funds are designed to help organizations continue paying employees, utilities, rent, mortgages, and similar operational expenses. Charter schools that have a 501(c)3 status with the IRS, and for- or non-profit education management companies with fewer than 500 employees may be eligible to apply for SBA 7(a) Paycheck Protection Program or SBA Economic Injury Disaster Loans. More information on each program is below.  

SBA 7(A) Paycheck Protection Program 

Under the CARES Act stimulus package, it is possible to access a loan valued at up to two-and-a-half months of payroll expenses; the bill is intended to enable the recipient to continue ongoing operations and prevent layoffs.   

The loan can be used to meet payroll and associated costs such as health insurance premiums, facilities, and debt servicing. Much of the loan may be forgivable if the organization keeps staff on payroll during the loan period and abides the spending limitations. This, in essence, turns a portion of the loan into a grant. The total loan fund is $349 billion, and loans will be given out on a first-come, first-served basis starting April 3. If the loan, or a portion of the loan, is not forgiven, the interest rate is 1% and the loan term is a maximum of two years with no pre-payment penalty. 

Click here for details and information about how to apply. 

Here is the link to the 100 most active SBA 7(a) certified lenders. The National Alliance is in no way recommending any lender. 

SBA Economic Injury Disaster Loans

As a result of the first COVID-19 relief bill, Economic Injury Disaster Loans (EIDL) is offering up to $2 million in assistance to nonprofits and for-profits to help overcome temporary loss in revenue caused by COVID-19. The interest rate is 2.75%, for nonprofits and 3.75% for for-profits with repayment terms of up to 30 years. The application is straightforward and can be completed online. However, please note that, unlike the 7(a) program, the EID loan does not include a forgiveness provision. Organizations cannot receive both loans, unless the loan applications are for different purposes (i.e. personnel and rent costs for 7(a) and other operating expenses for EIDL). The pot of money for this program is also much smaller, so we recommend looking into the 7(a) loans first. There are likely certifications required of this program as well, so please consult with your attorney. More details are below. 

Click here for details and how to apply.  

Understanding the Parameters, Risks, and Tradeoffs 

It is currently unclear if SBA will permit all charter schools to qualify for these programs since state law treats charter schools’ non-governmental status differently; SBA has not issued clear guidance specific to charter schools. 

In addition, while the loans might be helpful to certain charter schools, under the SBA’s final interim rule for 7(a) loans, borrowers bear exclusive responsibility—and liability—for making eligibility determinations. 

We recommend you consult with your attorneys and state advocates to examine your specific circumstances. 

In order to qualify for the 7(a) loans, the borrower will need to be able to confirm and, if asked, prove:  

  1. It is a non-governmental entity. 

  1. The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations. 

  1. The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments. 

  1. Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here. 

  1. From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here. (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan.) 

Similar eligibility requirements and certifications apply to EIDL loans as well. Good-faith certifications required. Please note: making a good faith certification is akin to submitting an affidavit in a legal proceeding; it triggers penalty if proof cannot be provided.  

Call the SBA Disaster Assistance Customer Service Center at 1-800-659-2955 if you need help with your application.