Many of us expected the stock market would fare poorly, that there would be long lines at food pantries, and that public health systems would be overwhelmed. Many of us did not expect to see record levels of unemployment, widespread permanent closures of small businesses, or the looming crisis that is impacting many communities that were already in turmoil.
In this new reality, foundations can play a vital role in supporting both individuals and small businesses.
Begin with the Council’s Comprehensive Coronavirus Legislation Guide for the Charitable Sector, which includesinformationon what resources the federal government intends to provide. The coming availability, or not, of public resources will influence and impact your plans.
With this information about public sector resources in mind, you can begin to establish philanthropic support that fills the gaps or bridges to public support. As you do so, be certain to engage in your community’s conversations about how public-private capital can work together.
While individuals across the country await unemployment and stimulus payments, many are in desperate need. Community foundations have long played a role of channeling funds to individuals in need in the wake of disasters.
Grants to individuals during a crisis must be made in a fashion similar to match typical scholarship requirements: there must be a broad enough pool of recipients and the grants must be objectively made. Council on Foundation attorneys released guidance on grants to individuals to help you learn more and explore the limitations in supporting individuals, noting:
Foundations that have engaged in disaster or hardship related grantmaking to individuals in the past can likely redeploy the procedures established previously.For those making grants to individuals for the first time, the foundation may need to implement new procedures around evaluation and recordkeeping for such grants.
Supporting Small Businesses with Grants
From restaurants to dry cleaners, barbers to boutiques, small businesses are in dire straits in this crisis. Philanthropy is no stranger to supporting economic development, community revitalization, and entrepreneurship. This form of philanthropic activity matters now more than ever.
Here are some important considerations for you to keep in mind when you are supporting for-profit businesses.
Engage Local Expertise
From the outset and throughout your efforts, engage frequently, consistently, and deeply with your local Chamber of Commerce, Economic Development office, Small Business Administration office, and similar local government agencies. Their insights and knowledge of local small business activity and economic development efforts are a vital component of your strategy.
Review IRS Publication 3833
Start by reviewing IRS Publication 3833. This publication is the best guidance we have so far on how to provide charitable support for small businesses. While the publication was written to guide support for communities in crises created by natural disasters, the parameters and examples it contains offer a roadmap for how we can adapt in this new circumstance we face as a nation.
IRS Publication 3833 states that disaster assistance may be provided to businesses to achieve the following charitable purposes: to aid individual business owners who are financially needy or otherwise distressed, to combat community deterioration, and to lessen the burdens of government.
Using the publication as a guide, keep in mind the following:
- Document the nature of the curtailed business operations that are causing “financial need or otherwise distressed” business owners
- For financial need: Focus on minority-held businesses, or those in minority or underserved/underinvested communities or neighborhoods
- For otherwise distressed: Focus on businesses that can easily document how their operations are reduced or lost due to the COVID-19 public health crisis
- To “combat community deterioration,” follow the above criteria for areas likely to feel the impact sooner (i.e. underserved/underinvested communities)
- Related to lessening “the burdens of government,” follow the criteria above and focus on gaps between COVID-related public support and actual needs
Make “Recoverable Grants”
A recoverable grant is one in which you can recover a portion or all of the grant in the future. Use this tool as much as you can when supporting for-profit businesses, with the option to not recover if the business can prove its usage for charitable purposes. Examples of such charitable purposes include:
- Use of funds to pay rent, when the loss of income due to the COVID-19 pandemic is demonstrated
- Support to a restaurant providing food delivery service to home-bound residents
- Support to a business that is providing free storage space to a food bank
However, because of the unknown nature of this crisis, be prepared that you may not recover all the recoverable grants you make.
Community Development Financial Institutions (CDFIs) are banks, credit unions, loan funds, microloan funds, and venture capital providers that share a common goal of expanding economic opportunity in low-income communities. Whenever possible, community foundations should utilize CDFIs to make the actual decisions for who receives funding from the community foundation. The CDFI is a qualified grantee of the community foundation and can administer the selection and distribution of funds on behalf of the community foundation.
Be sure to document and justify your actions in written and filed documentation to substantiate your work. If you wouldn’t report it and wouldn’t stand behind it with the IRS or local media, it is definitely not worth it. See an example of granting to small business guidelines created by the Community Foundation of Greater Des Moines.
Charitable Alternatives to Providing Direct Cash for Small Businesses
Where possible, work with partners to assist small businesses in ways other than giving direct cash, such as through:
- Assistance in securing SBA loans via the federal stimulus package
- Pro bono legal services to aid in contract negotiations for debt collection, deferred rent, etc.
- Technical assistance to adapt to doing online sales, social media marketing campaigns, etc.
- Support for marketing campaigns that promote “local” businesses and available services still provided during the pandemic
Remember that Nonprofits are Also Businesses
Nonprofits—including community foundations—qualify for federal Small Business Administration assistance related to the COVID-19 crisis such as the Paycheck Protection Program. These links provide helpful information: