By Dr. Stanley Carlson-Thies

The Small Business Administration (SBA) on April 3 issued a Frequently Asked Questions document affirming the eligibility of religious organizations, including houses of worship, for the new Payroll Protection Program (PPP) forgivable loans, and confirming protections for their religious identity and practices. This FAQ document supplements the interim final rule for the PPP program, released on April 2. A few concerns remain, and IRFA will continue to work with the administration and Congress for clarification. Protections for churches are clear, but faith-based service organizations should consult with an attorney knowledgeable about church-state issues and government regulations when deciding to apply for a PPP loan.

Small faith-based nonprofits and congregations are likely to be under-resourced and under-networked, and may lack strong ties to a bank. These service organizations and houses of worship provide vital spiritual and physical resources and services for their communities, especially in times of crisis. And yet, these same organizations are likely to face additional challenges in accessing these loans.

The Institutional Religious Freedom Alliance, along with our colleagues at the Center for Public Justice (CPJ), is committed to providing relevant and accurate information to faith-based organizations and congregations of all sizes. Taken together, the PPP program rules and additional information show the strong intent of the federal government to provide assistance through the SBA to maintain the operations not only of small businesses and secular nonprofits, but also faith-based organizations, including houses of worship, during the COVID-19 health and economic crisis. It remains the case that organizations that do not already have strong relationships with a financial institution, experience applying for loans, and familiarity with government rules and programs will face many challenges in seeking to obtain a PPP loan.

Applications for PPP-forgivable loans, which must be used to pay for payroll and other key operational expenses, began to be accepted on April 3 by participating banks and other financial institutions, and some banks were discussing the loans with potential applicants even earlier. Interested applicants should not delay; if you already have a relationship with a financial lending institution, ask the staff whether it offers PPP loans (or check its website). If not, try another eligible lending institution. Ask your local SBA office (list here) for other local lenders or check the SBA list of lenders here. Every bank will have the same loan terms and none are allowed to charge an application fee. For more on the PPP loans, see the SBA’s PPP loan information.

Protection for religious identity and practices

The SBA has affirmed that religious organizations that receive PPP loans do not lose any of their religious protections under the First Amendment, the Religious Freedom Restoration Act (RFRA), or other federal laws. The FAQs acknowledge that the SBA must modify or not enforce certain of its existing rules that would wrongly exclude some religious organizations from the PPP program.

The FAQs affirm that: “a faith-based organization that receives a loan will retain its independence, autonomy, right of expression, religious character, and authority over its governance, and no faith-based organization will be excluded from receiving funding because leadership with, membership in, or employment by that organization is limited to persons who share its religious faith and practice.”

Eligibility and protections for houses of worship

Churches are eligible the same as other small employers (no more than 500 employees). Churches are 501(c)(3) organizations whether or not they have an IRS determination letter, and should check the “501(c)(3) nonprofit” box on the application form.

Churches that receive a PPP loan may continue to employ, and admit to membership, only people who meet the pre-established religious standards. They may continue to offer programs and services only to their own members or only to people of their own faith.

Serving the community without discrimination

PPP loans carry an obligation, for recipients that serve the public, to offer their “goods, services, or accommodations” without discriminating on the basis of race, color, religion, sex, handicap, age, or national origin. Service without discrimination is the common practice of faith-based organizations already, for reasons of both faith and mission (for Christians, remember Jesus’ question about who our “neighbor” is).

Yet some faith-based service organizations (and their secular counterparts, too), and the community-serving ministries of houses of worship, may have good reason to limit how they serve the public. For example, a domestic abuse shelter may serve only women or only men. Some faith-based social services are open to the public, but have distinctively faith-based content, based on religious precepts, that could be considered discriminatory. Consult an attorney knowledgeable about church-state law and laws pertaining to tax- exempt organizations. Note that federal law permits single-sex shelters and single-sex educational programs and college residences, so these institutions may have clarity that might inform their decision to apply. As another example of an accommodation to religious exercise, the Department of Health and Human Services has ruled that, because of the Religious Freedom Restoration Act, which applies to PPP loans, a Christian foster care ministry may continue to work only with Christian families.

Keeping your doors open so you can continue to serve

Churches and other faith-based organizations have good reason to think twice when the government offers financial support. Government rules press toward uniformity, yet faith-based organizations need to maintain independence and their mission- and faith-based distinctive beliefs and practices. With the PPP, Congress and the administration have made it possible for faith-based organizations to seek financial support so that they can maintain their operations and their service to members and the community. Such support may be especially important for smaller faith-based organizations and congregations, especially those in minority communities, that may not have access to private financial resources from individual donors, foundations, or other philanthropic sources.

The public will be watching how religious organizations serve during this crisis, both those that receive PPP support and those that do not.

Affiliation Rules

The SBA issued an interim final rule on April 3 concerning its complicated affiliation rules. For PPP loans, applicants can have no more than 500 employees, but it was unclear how that limit would apply to churches and other religious organizations that have a denominational or other religious connection. The new rule exempts a religious applicant from the affiliation rules if the connection it has with other organizations is an affiliation “based on a religious teaching or belief or is otherwise a part of the exercise of religion.” This provides faith-based organizations or church-affiliated institutions clarity that each denominational school or charitable organization will be treated as a distinct entity, rather than all of the employees of the denominations’ schools or charitable arms counting towards the employee limit. It also allows for relief to be sought by these smaller organizations in situations where there is a need.

IRFA’s religious freedom advocacy continues

Some details of the PPP regulations need to be further clarified or modified, including the following:

• The protection for religious staffing should be explicitly extended to all employees, not only those carrying out the religious organizations’ “religious activities” ;
• The SBA should make it clear that educational institutions and programs receiving PPP support receive the Title IX exemption without having to submit a letter to ask for it;
• The Administration should specify how RFRA will protect faith-based distinctions in service to the public; and
• The SBA should clarify which disability accommodations a religious organization will be newly responsible for by accepting PPP support, since these accommodations can have disparate impacts on organizations least able to afford them.

More reform needed for the PPP program

The SBA’s PPP loans are intended to uphold the smaller institutions of our society, religious as well as secular. Yet, as a brand-new, first-come, first-served program with remaining uncertainties, it has not been designed well to uphold organizations less experienced with government and with less access to financial resources–the very organizations that most need this support in this time of crisis. That is, beyond religious freedom reforms, the SBA needs to introduce reforms in the application process and to provide immediate and clear assistance to smaller organizations attempting to apply for these loans. We will continue to advocate with the administration and Congress for both kinds of changes.

For further context on the new emergency COVID-19 laws and their impact to faith-based organizations, watch the April 3 webinar and access a related resource.

Dr. Stanley Carlson-Thies is the founder and senior founder of the Institutional Religious Freedom Alliance, a division of the Center for Public Justice.