By Dr. Stanley Carlson-Thies

Recent action by the Small Business Administration (SBA) provides important reassurance for faith-based organizations that are seeking or have received a Paycheck Protection Program (PPP) forgivable loan. Of great interest to many borrowers, on May 13, the SBA announced that borrowers who, together with any affiliates, received a loan under $2 million need not worry that their claim of economic necessity will be challenged. This is important because federal officials have very publicly threatened the economic-necessity claims of some large borrowers and pressured some to return loans. Note, too, that on May 15 the SBA released the form and instructions for how borrowers can apply for forgiveness of a PPP loan.

The other change concerns the religious restrictions that apply to PPP loans. On May 8, the SBA published an Interim Final Rule enlarging the religious protections for ministries and congregations that accept PPP loans.

The PPP program received two rounds of funding: $349 billion from the CARES Act, which became law on March 27, and $310 billion from the Paycheck Protection Program and Health Care Enhancement Act, enacted on April 24. Much of the lending authority is now exhausted and, although it is likely that Congress will authorize further PPP loans, it is not yet certain that this will happen.

As enacted in the CARES Act, the PPP program from the start was intended to provide help beyond small businesses–the usual clients of SBA programs–to nonprofit organizations, including not only religious charities, but also houses of worship. The program was intended to help these smaller organizations continue in operation and retain their staff, despite the economic dislocation and health challenges caused by the coronavirus pandemic.

Already on April 3, the first day that applications were accepted, the SBA issued a FAQ concerning the conditions under which religious organizations can participate in the new loan program–an important action because the SBA’s regulations had never been designed to accommodate the participation of ministries and churches in its regular loan program. The FAQs were reassuring. They acknowledged the strong religious freedom protections provided by the Religious Freedom Restoration Act, other federal laws, and the U.S. Constitution. They stated that, notwithstanding the SBA’s broad ban on discrimination by organizations receiving its aid, faith-based organizations that accept PPP loans can continue to use religious criteria in selecting their leaders, members, and staff. The SBA’s regulations, the FAQs pointed out, did apply a broad nondiscrimination ban on borrowers, but it assured religious borrowers that they could continue to shape their services according to their own religious criteria when serving their own faith communities. When serving the public, they would have to abide by the broad prohibition on discrimination, although this requirement would end when the loan was paid back or forgiven.

Faith-based organizations typically serve everyone in need, and yet the requirement caused concern. For example, would a denominational retirement home run afoul of the SBA’s nondiscrimination requirement because it only accepted members of the denomination? Moreover, FAQs, however comforting, do not have the legal force of contrary regulations.

So the Interim Final Rule published on May 8 is very important. In it, the SBA went beyond the assurances to change the actual regulations under which the PPP program operates. Two important changes were made. First, the modified regulations now explicitly acknowledge that the SBA’s nondiscrimination regulations must be understood to include the exemptions that exist in federal law. Title IX provides an exemption for religious educational institutions. The Fair Housing Act permits religious organizations to restrict housing to those of the same religion, and it authorizes single-sex domestic abuse shelters. A federal law requires particular placement decisions in foster care and adoption for Native American children. Second, the religious exemption in the SBA’s employment nondiscrimination regulation was modified–broadened–to mirror the Title VII religious organization exemption. These are highly significant changes, even if the PPP program is not extended through a new infusion of funds, because of their acknowledgement of institutional religious freedom.

But two important changes still need to be made. First, although both the April 3 FAQs for faith-based organizations and now the May 8 Interim Final Rule state that religious borrowers retain their full right to hire according to religious criteria, the SBA website and at least some of the financial institutions that help to carry out the PPP program, require a statement of the opposite. The SBA and those financial institutions obligate religious borrowers to post in a public place an Equal Employment Opportunity notice that says they “do not discriminate on the ground of . . . religion” in making their staffing decisions–and yet it is their full legal right to do so. For religious borrowers the poster must be modified or the requirement to use it be withdrawn.

Second, the SBA’s broad requirement of nondiscrimination in services, except where there specific exemptions in federal law or where the faith-based organization is serving only co-religionists, should be removed from the PPP loan program. Recall: this is a special program, created because of the coronavirus pandemic and designed to enable small organizations to keep their doors open and their employees on staff. As long as those organizations are following the laws that already apply to them and are willing to follow the rules of the PPP program (what the money can be used for, etc.), then no additional limitations should be placed on them simply because they requested assistance designed to help them. Faith-based adoption agencies, for example, are permitted under federal law to utilize faith-based criteria in deciding which families to work with. They should not be required suddenly to disregard their faith-based motivation because they received a PPP loan that allows them to keep employing their staff and serving their community.

The PPP program stands as a strong instance of our federal government’s acknowledgement that our society is comprised not only of individuals, government agencies, health institutions, and big and small businesses, but also of civil society institutions: secular and religious nonprofits, including religious charities and houses of worship. But it needs some additional fine-tuning in order to fully uphold institutional religious freedom.

Dr. Stanley Carlson-Thies is the senior director and founder of the Institutional Religious Freedom Alliance.