Where are most nonprofits at this point in the year when it comes to managing their PPP loans and applying for forgiveness? Most nonprofits we’ve interacted with were able to secure loans between April and early June. One of the changes to PPP in early summer was that organizations could elect to use either an eight-week period or a 24-week period to spend down their loan. In PPP terms, this is the “Covered Period.” With many electing to use the 24-week Covered Period, that means most organizations wrapped up using PPP funds by mid-November, if not sooner, and most are ready to start applying for forgiveness. We are now seeing an uptick in nonprofits applying for forgiveness, with some already getting notices back from their lenders that they’ve received full forgiveness, which we love seeing.

A couple of reminders: If organizations are ready to apply for forgiveness, they should check to see if their lender is ready to accept applications and be sure they understand their lender’s process. If you are not yet ready to apply for forgiveness, not to worry. Borrowers have effectively up to 10 months from the end of their Covered Period to apply for forgiveness without incurring any penalty.

What updates from the Small Business Administration (SBA) or Congress should nonprofits be aware of related to PPP? Since July, things have been pretty slow in terms of new PPP guidance. Congress has not passed any new legislation to either make the PPP forgiveness process easier (or automatically forgive loans below a certain size) or to make a second round of PPP available for those organizations still hurting in this economic crisis. We’ll have to see what happens over the next couple of weeks as Congress debates another round of COVID relief.

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If your nonprofit is trying to find ways to accomplish new goals or is struggling, it might be time to restructure. Restructuring and reorganization can take on different forms, but they usually involve an intentional desire to change direction. Choosing which method is best can be a challenge. There are three primary methods:

Restructure is the term we use to denote an “internal” change in the way things are operated, like adding or subtracting a new program line. Reorganize is the term used to describe a more formal process, usually involving a neutral third party and a court. We’ll walk through the basics of the three methods, but to learn exactly what’s right for your unique situation, we recommend consulting a qualified attorney.

When an organization is trying to establish a larger foundation for future growth, or significantly change the way it operates its governance or its programs, then restructuring is in order. This commonly involves changing the board governance (committees, meeting frequency, etc.), eliminating program lines, adding program lines, or adding subsidiary or affiliate entities. Most of these changes require amendments to the organization’s bylaws, and may also require filings with the secretary of state, attorney general, Internal Revenue Service or other regulators.

Chapter 11 bankruptcy is sometimes appropriate when the nonprofit organization believes that it can continue operating once its outstanding liabilities have been reorganized/restructured. Chapter 7 bankruptcy should be used when the nonprofit organization needs to fully liquidate and close, which you can read about in our previous post. Although a bankruptcy court has the legal authority to modify contracts, a Chapter 11 bankruptcy court does not have an ability to discharge any debts that have not been paid in full through the reorganization process.

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