Washington D.C., Apr 6, 2020 / 02:00 pm (CNA).- After the federal government clarified Friday that religious non-profits are eligible for small business loans during the coronavirus pandemic, legal experts have said the news could prove welcome relief for cash-strapped Catholic dioceses and parishes.

“The bottom line is that Friday’s rule is very good news for religious organizations,” said Eric Kniffin, a partner in the religious institutions practice group at Lewis Roca Rothgerber Christie law firm, about new federal guidance on coronavirus relief for religious non-profits.

“Parishes should coordinate with their dioceses before moving forward, but this is a huge relief to religious organizations as they seek to support their employees in the midst of this pandemic,” he said.

On March 27, Congress passed, and President Trump signed into law, the Coronavirus Aid, Relief, and Economic Security (CARES) Act which provided relief for businesses, non-profits and workers affected by the new coronavirus pandemic.

The law allows eligible non-profits to apply for small business loans. One of the requirements for loan applicants is that they have 500 or fewer employees, which made Planned Parenthood ineligible for the relief.

As some Catholic parishes and institutions have already begun cutting or furloughing employees during the economic downturn from the pandemic, the new federal relief was seen as a possible solution to help Catholic non-profits keep employees on payroll, but many groups had questions about their eligibility under the law’s provisions.

If the Small Business Administration considered Catholic dioceses along with all their related entities—such as parishes, schools, and charities—as one large non-profit entity governed by bishop, then many, if not all, dioceses would exceed the 500-employee limit to apply for relief.

However, if each Catholic parish, school, and charity were eligible to apply for a small business loan under the CARES Act, then it could be a significant boost to their ability to keep employees on payroll as donations dried up.

Over the weekend, the SBA published a document clarifying its new rule on the eligibility of religious groups for paycheck protection and economic injury loans during the pandemic.

While not all questions have been answered, ultimately the updated rule summary is “deferential toward religious groups,” Kniffin said, as “government is prohibited from second-guessing church’s interpretation of their own doctrine or ecclesiology.”

New affiliation rules for the SBA Paycheck Protection Program issued by the Treasury Department clarify that if a smaller entity—such as a parish—and a larger one—a diocese—are tied together on religious grounds, they do not have to be considered as one large entity.

"If the tie between your local entity and a larger entity is the result of your religious beliefs, then you do not have to count that tie when you are counting up your employees,” Kniffin said.

The SBA’s updated guidance is “a grace” for Catholic institutions, said Jeremy Reidy, a partner at Barnes & Thornburg, LLP who is also a member of the Fort Wayne-South Bend diocesan review board.

Before the new rule was issued, “I don’t think any diocese across the country would have qualified [for small business loans],” Reidy said. The bishop “has ultimate control over everything” in a diocese including smaller entities such as parishes and Catholic charities, he said, and each diocese could have been considered by the government to be one big organization.

Yet the government now treats the smaller entities as separate from dioceses “so long as they’re tied together for religious purposes,” he said.

Not all dioceses are structured the same, Reidy cautioned. While in “the vast majority” of U.S. dioceses, the parishes and schools are separate non-profit corporations, in some other cases the diocese is the only incorporated entity.

In these select cases, Reidy said, a “potential obstacle” to a parish or school still receiving federal relief might be that they do not file payroll taxes and tax returns separately from the diocese, and thus would be aggregated into the diocese.

A tie between a parish and diocese that is “practical” and not just religious in nature might also pose an obstacle to their obtaining relief, Kniffin said.

Yet, both Kniffin and Reidy said, Catholic institutions should consider applying for the loans under a “good-faith interpretation” of eligibility.

As the rules are “deferential” to the eligibility of religious organizations, Kniffin said, lenders are also being directed “to accept applicants’ good-faith representations at face value.”

As long as Catholic groups have their own employer identification number and 500 or fewer employees, they could apply on their own.

“I think all dioceses, with this new regulation, can make that good-faith certification,” Reidy said.

In its guidance, SBA emphasized that non-profit loan recipients can have a religious mission, and will not be penalized for employing only people who abide by the religious mission of the organization.

Each recipient “will retain its independence, autonomy, right of expression, religious character, and authority over its governance,” SBA said. Loans can be used to pay the salaries of ministers and staff.

The new rules do require that loan recipients do not discriminate when they provide goods and accommodations to the public. Depending on the interpretation of existing civil rights protections, some charities might be ruled ineligible for loans because they do not provide services in certain cases.

Examples of this might include a religious adoption agency refusing to place children with a same-sex couple, or a homeless shelter refusing to house a man identifying as a woman with other women.

The SBA says it “will not apply its nondiscrimination regulations in a way that imposes substantial burdens on the religious exercise of faith-based loan recipients, such as by applying those regulations to the performance of church ordinances, sacraments, or religious practices, unless such application is the least restrictive means of furthering a compelling governmental interest.”

This question of compliance with nondiscrimination provisions is one that religious groups are still asking about, Kniffin said.

Yet with a Catholic group providing social services, such as a soup kitchen or a homeless shelter, they most probably have received government funding and would thus would already be in compliance with federal regulations.

The ultimate goal of providing the loans, SBA added, is to ensure quick relief for many small businesses and non-profits which have been severely impacted by the recent coronavirus crisis.

The SBA loan is a “forgivable loan” that “can become basically a stimulus check” if non-profits abide by certain provisions such as keeping the same number of employees on payroll, Reidy said.

“It’s a great deal,” he said. “I encourage every organization to do it.”