Pandemic Relief for Arts and Culture Nonprofits: Resources with Messages

4.1 Paycheck Protection Program

The signing of the CARES Act into federal law on March 27, 2020, created the PPP and provided COVID-specific funding for the EIDL program. The PPP was a forgivable loan designed to keep workers in “small” businesses (i.e. fewer than 500 employees) paid and employed during the pandemic. To maximize reach, the PPP granted expanded eligibility to sole proprietors, independent contractors, self-employed individuals, veterans’ organizations, tribal business concerns, and nonprofits. The breadth of organizations included was a marked differences from past SBA programs. The implemented program parameters included:

1. Loan amounts based on the average total monthly payroll costs incurred during one year before the loan was made multiplied by 2.5, and not to exceed $10 million.

2. Requirement to expend funds in eight weeks.

3. 75 % of the loan had to be expended on payroll costs.

4. Maintain or return to the same level of full-time equivalent (FTE) number of employees by the end of the loan.

5. Loans had to be processed through SBA-approved lenders (i.e. primarily large banks and referral services) (Brown et al. 2020).

The legislative program parameters were much broader than initially implemented by SBA and allowed loan forgiveness for payments on payroll costs, covered mortgage obligations, or covered utility payments. The legislation did not include percentages for how the loan was spent to qualify for forgiveness (Courtney 2020).

Less than three months later the PPP Flexibility Act (June 5, 2020) allowed for additional program flexibility that included:

1. Tripling the time to expend funds to 24 weeks; and

2. Reducing the payroll costs expenditure requirement from 75 % to 60 %.

It also included a “safe harbor” clause for borrowers unable to match the FTE level they had at the time of closure. This provision allowed forgiveness if the organization was able to document its inability to return to the same business activity level it had before February 15, 2020. The safe harbor clause was critical for arts and culture organizations during closure because their inability to return to pre-pandemic FTE-levels could be due to compliance with requirements issued by a government health agency,^[2] social distancing requirements, or other worker or customer safety requirements related to COVID-19.

The PPP was initially funded at $349 billion (Round 1) and was recapitalized to $659 billion (Round 2) one month later. Because the pandemic impacts continued, the PPP was recapitalized again with an additional $284 billion in December 2020 through the Consolidated Funding Act, which brought the total program funding to nearly one trillion dollars (CSL STYLE ERROR: reference with no printed form.). Program parameters were again changed to:

1. Allow previous PPP recipients to participate in a second draw.

2. Allow access for those who had not yet received a PPP to apply for a first draw.

3. Simplify the forgiveness application for loans under $150,000.

4. Further expand the approved financial institutions to service the loans to include Community Development Financial Institutions, Minority Depository Institutions, Certified Development Companies, and Microloan Intermediaries (U.S. Small Business Administration 2021);

5. Create a $15 billion (5 %) set aside for additional PPP lending by Community Financial Institutions.

6. Narrow eligibility from 500 employees or less to 300 employees or less.

7. Require applicants to have at least a 25 % reduction in gross receipts in any calendar quarter of 2020 compared to the same quarter of 2019 (U.S. Treasury 2021; emphasis added).

Importantly, the Consolidated Funding Act contained the key for nonprofits to access a second forgivable PPP loan (CSL STYLE ERROR: reference with no printed form.).^[3]

The rapid implementation of the PPP forced the SBA to figuratively “build the plane while flying it”, straining the SBA’s administrative capacity. Between April 2020 and April 2021, the SBA issued over 90 FAQs, guidance documents, interim final rules, etc. (see Table 1). The first few months before the Flexibility Act in June 2020 were uniquely laden with strife and uncertainty. Organizations had to navigate a quickly shifting legislative landscape. The SBA’s severe administrative burdens to create and implement the PPP leads to our first research question to identify the program’s interpretive effects.

The PPP’s focus was on retaining employees for businesses such as restaurants and retail.

As discussed above, however, arts and culture organizations often hire personnel through contracts for specific programs, not as employees. The focus on employees also did not allow arts and culture organizations to robustly cover fixed costs such as rent and utilities, often among their largest expenses. This leads to our second PPP question regarding resource effects.

4.2 Emergency Injury Disaster Loan

The EIDL is an ongoing SBA program designed to assist private, non-farm businesses with 500 employees or less that have sustained losses in a disaster-declared county. The CARES Act authorized $10 billion in COVID-specific emergency EIDL funding (Courtney 2020). While dwarfed by the nearly $1 trillion invested in the PPP, this lesser-known program was another source of funding available to arts and culture nonprofit organizations. Unlike “building the plane while flying it” for the PPP, the EIDL was an existing program with SBA employees familiar with the loan application and review process. The program rules required the business/nonprofit to be in existence for at least one year before the disaster and waived any personal guaranteed requirement on advances and loans of less than $200,000. The loan was a 30-year, 2.75 % fixed interest rate for nonprofits and 3.75 % for businesses, with no upfront fees or penalties for early repayment. In our study we repeated the research questions for the PPP to identify the EIDL’s interpretive and resource effects.

The PPP and Health Care Enhancement Act recapitalized EIDL with an additional $10 billion mere weeks after the Cares Act. Even with the recapitalization, the program was oversubscribed. On May 4, 2020, due to program funding constraints and with the stated SBA goal of helping as many small businesses as possible, SBA decreased the maximum EIDL loan amount from $500,000 to $150,000, or the equivalent of six months of working capital (U.S. Government Accountability Office 2020). The amount is in stark contrast to the $2 million loan amount normally set by the SBA. Almost a year later, this limit was raised by the American Rescue Plan Act to allow borrowers to increase loan amounts up to $500,000 on the same terms (American Rescue Plan Act of 2021, 2021).

Allowable expenditures include paid sick leave for employees unable to work due to COVID-19, payroll, increased costs due to supply chain interruption, rent or mortgage, and repaying obligations unable to be met due to revenue losses. Organizations were eligible to secure both PPP and EIDL resource support but expenses could not overlap. Organizations were also able to secure an EIDL Grant Advance (CARES Act 2020), of $1,000 per employee up to $10,000. Initially, this grant was to be deducted from PPP forgiveness, however the rule was later rescinded (America Rescue Plan Act of 2021 2021). A follow-up second question identifies EIDL resource effects.

6.1 Online Survey

We developed an online survey of nonprofit arts and culture organizations in NYC focused on their experiences with the PPP and EIDL. The survey asked participating organizations for basic descriptive information, such as the number of employees, operating expenses and fiscal reserves, and geographic location. We designed questions for each of our research question themes: 1) experiences with PPP applications, 2) effects of PPP on the organization, and 3) experiences with EIDL applications, and 4) effects of EIDL on the organization. The experience questions inform interpretive effects, and the program effects questions inform resource effects.

The section on PPP application experiences began with questions identifying the interpretive effects. It asked each organization to report if they qualified for the PPP loan, if they applied for a PPP loan, if their application was approved, and, finally, if they accepted the loan. Next, participants reported any prior banking relationship(s) with their lender(s) (e.g., line of credit, checking account, existing relationship with board member, etc.). Participants were asked two questions about loan forgiveness. The first question asked how confident they were that the loan would be forgiven and what impact it would have if the loan was not forgiven. These questions focus on the interpretive effects of applying for a PPP without SBA’s fully developed criteria and process for loan forgiveness. This block of questions about application experiences was repeated for both PPP Round One (only SBA-approved lenders) and PPP Round Two (loan institutions expanded). To assess the resource effects of the PPP loan we asked the loan amount, how beneficial it was, and how well it matched the organization’s needs.

We repeated similar question for EIDL questions to assess interpretive and resource effects.

6.2 Interview Methodology

We conducted 16 semi-structured interviews with a range of NYC arts and culture stakeholders from February 2021 through May 2021. Interview participants were recruited from city government, private foundations that fund NYC arts, borough arts councils, and an array of nonprofit arts and culture organizations’ leadership. Interviews followed a semi-structured format guided by our research questions to assess access and barriers to pandemic programs and broader themes on how the pandemic was affecting the sector. For nonprofit organization leaders, we asked how many performances/shows organizations were canceled or postponed, whether they offered virtual programming, submitted applications to other government funding programs (e.g., NEA), and the financial viability impacts of the long-term closure. For government officials, foundations, and sector support organizations, we repeated general questions on the arts and culture as a sector with more specific questions for the different types of stakeholders. All interviews were held via Zoom and conducted with at least two authors present. Appendix A includes the nonprofit organization leadership interview questions.

The authors analyzed the transcripts using NVivo qualitative data analysis software to identify common themes and patterns in participants’ responses. The team used a combination of deductive codes based on the interview questions and inductive codes for emerging themes of interest. The relevant deductive codes for this paper include government funding, organizational size/disparity, PPP, EIDL, government interactions, funding or organizational equity, and government relief program confusion. The inductive codes include future needs, virtual or continued service delivery, first days of the pandemic, furlough, pandemic positive experiences, government advocacy, reopening, for-profit over nonprofit. One author led the coding process, and a co-author reviewed the identified passages for each theme to reach consensus on interpretation.

7.1 PPP Interpretive Effects

About two-thirds of organizations surveyed (n = 88) reported that they qualified for the PPP loan. Of those that qualified, seven decided not to apply. Of the remaining 81 that applied, 68 were approved by the bank and, finally, 65 organizations accepted a PPP Round 1 loan (see Figure 4). Ultimately, 65 of the 88 (74 %) qualifying organizations accepted a PPP loan in Round 1.

Figure 4:

PPP application attrition. Note: This flow chart demonstrates attrition of PPP applications at each step of the process from qualification to approval.

In Round 1 the requirement that the lender had to be SBA-approved proved to be a barrier for those without an established banking relationship. Fifty of 65 (77 %) organizations that accepted a PPP loan in Round 1 had a prior banking relationship with the lender (see Table 3). Checking accounts were the most common banking relationship (n = 42) followed by credit cards (n = 13) and lines of credit (n = 8). Five organizations reported an executive staff relationship with a lender and five also reported a board member relationship with the lender. One organization reported both. Common interview and qualitative survey responses expressed,

[T]he primary bank that we held did not return my phone calls or emails for a week, and there was one time, when I did actually call them and the person who picked up the phone didn’t put me on hold, and yelled to the branch manager, while I was on the phone and she was like, “yeah I’m not going to call her back.” - Arts and Culture Service Organization interview, April 2021

This quote represents the general impression shared by many of our respondents without prior relationships with SBA-approved lenders. Interpretive responses indicate that access to PPP funding was not a priority for the federal government. Unlike businesses that may have a line of credit or loans with an SBA-approved bank, arts and culture nonprofits experienced a barrier to participation.

The rules for PPP loan forgiveness were unclear and yet most organizations were either extremely confident or very confident (91 %) that they would qualify for loan forgiveness. Crucially, confidence in forgiveness may have been a major factor in accepting a loan – 65% of organizations reported that they would have suffered major negative impacts or faced closure if the loans had not been forgiven (See Figure 5).

Figure 5:

Impacts of PPP not being forgiven.

Again, this may reveal an inhibitory effect of the terms of the PPP applications if organizations that were not confident in the program’s likelihood of forgiveness chose not to apply. As one interviewee responded,

Now we are going into this process of forgiveness and I’m super anxious to know whether that’s going to be process and time [intensive]… interest is going to kick in, you know it’s very uncertain. What I cannot tell you is whether other people have already gotten their forgiveness approved, and I should ask to understand better. – Arts and Culture Service Organization interview, April 2021

The same interviewee said regarding her own organization,

What we’re waiting for is still the forgiveness and I’m not sure if it is the consequence of SBA releasing new forms in December …or of our [banking] institution that is not doing it. Again, because we went through this small institution that changed hands… I call them every other week [and they say] that they are waiting for the SBA… That the SBA just released new forms after the new package came out for loans in December, they are still trying to figure it out what the processes are for them to process my forgiveness application. We submitted it in January, and now we are in May, so we’ve been waiting for three, four months, plus. Again I put it on this institution in particular, but, so it makes me also wonder what kind of oversight do these institutions enter in the way that they process all of this. I don’t have an answer.” - Arts and Culture Service Organization interview, April 2021

Loan forgiveness was also complicated by state portal issues and size of loan,

We have actually not been forgiven yet because the portals are currently closed in New York State… But the banks are not forgiving loans more than $150,000, or processing the paperwork, I should say because they’re not the forgiving entity. But they’re not currently processing paperwork for loans greater than $150,000.” - Arts and & Culture Service Organization interview, March 2021

The safe harbor clause also came up as an important factor in strategic decision-making. As one executive director of a large arts and culture organization stated,

We just sort of decided that we might have to pay back some of this loan. And that we had to do what was best strategically for the institution, not what was best strategically for this $650,000 loan. Because in that moment, there was much more at stake than just whether we could get the loan forgiven or not. And so we did kind of make that calculation early on, as it happens, the safe harbor clause does help us and also you know, because of the extension of the timeline the FTE became a little less salient because we ended up adding up being able to add some staff over that time period and do some other things that you know made sense for the institution and also helped us recoup … getting [to] be eligible for the forgiveness. - Executive Director large organization interview, March 2021

Survey participants were asked to rate how much administrative or logistical barriers affected their PPP application(s) on a 1–5 scale (see Table 4). Forty-two of 84 participants (50 %) across both rounds encountered at least a moderate amount of barriers while applying for both Round One and Round Two, suggesting that the application process was difficult for about half of nonprofit arts organizations.

An arts service organization commented,

There was also a lot of confusion about the paperwork, because it looked as though the federal paperwork was written and then rewritten and rewritten and rewritten. “So, I thought, I filled this form out before, well you filled out the early version of the form, so you need to fill it out again” things like that. – Arts and & Culture Service Organization interview, March 2021

Securing a PPP loan, particularly during the early weeks of implementation, favored those with connections. In this quote, the participant speaks to the lack of capacity for smaller organizations to navigate the complicated bureaucratic process described above, as well as highlighting the geographic inequity in distribution of resources:

You know, there are always winners and losers in these things, and I think that many, very small organizations, the ones that are the two-person organizations, that are not attached to larger institutions or neighborhoods where there’s good cultural infrastructure, which is really most of Brooklyn, probably most of Queens and the Bronx and Staten Island too, and probably a lot of Manhattan. I really worry that those people will have the capacity [to] be able to sustain their work. - Arts and & Culture Service Organization interview, March 2021

A government official spoke directly to the challenges nonprofits face, especially the smaller ones.

… the feedback at the beginning, the nonprofit organizations were forced to compete for funds with for profit… the smaller ones, the more scrappy ones and that didn’t have a relationship with a bank, that they didn’t have you know enough to show for a loan, were left out at the beginning. - Government Official interview, May 2021

Our findings demonstrate that the PPP policy design was narrowly focused on small businesses that had prior banking relationships with loan officers from SBA-approved institutions. The PPP was not sufficiently adapted for arts and culture nonprofit organizations’ financial realities. As discussed in the introduction, the application was not adapted for organizations that do not have owners, which may have been interpreted by some as a message that the SBA did not prioritize nonprofit organizations. In the chaos of the pandemic in New York City, participation in the PPP was a dire need, even though loan forgiveness was not assured. However, barriers to access for PPP Round 1 were too much for many of the survey recipients and those findings were corroborated by an array of stakeholder interviews. Interpretive messages were that nonprofit arts and culture organizations were not valued by government.

7.2 PPP Resource Effects

Organizations that received a PPP were asked to report the amount of the loan. PPP funding ranged from less than $10,000 for smaller organizations to more than $1,000,000 for larger organizations (see Table 5 for full results).

In our survey and interviews, we found positive resource effects. The PPP funding benefited nonprofit organizations in terms of synergies with their needs and qualitative satisfaction with the funding. Seventy of 79 organizations (89 %) reported that the PPP loans were “extremely beneficial” or “very beneficial.” For those that could obtain the loan, it infused funding when earned revenue disappeared (See Table 6).

The loans also matched organizations’ needs, as demonstrated by 78 % of survey participants reporting that the loan was either a “perfect match” or a “very good match” for their needs (See Table 7). A limitation to interpreting these results is that there is some bias to how well the loans matched organizational needs since these organizations accepted PPP loans. Some organizations may have chosen not to apply for or accept the loans if the restrictions did not meet the needs of the organization. Qualitative responses indicated that some small organizations did not apply because hiring is program-based.

Not for profit organizations like ours were too small to qualify for the PPP loan program. All those involved in our organization are given stipends for their work and hired on a project-by-project basis. – Nonprofit Theater Group qualitative response

To gain insight into employment decisions, we asked survey respondents to report how many staff were furloughed. Twenty-two organizations (41 %) that received a PPP furloughed staff in some manner. We could not conclude whether the PPP loans prevented furloughing because only 11 organizations that did not receive a PPP answered this question. This may indicate a protective effect of the PPP loans on staff retention. A survey of 648 New York City community-based organizations found that 37.5 % of staff were furloughed, but that result did not include whether the organization had received a PPP loan (Dvorkin et al. 2021).

The qualitative interview responses reflected the difficult challenges organizations faced. They had to make quick decisions that significantly impacted their staff. This quote from a nonprofit executive director highlights the precarity many organizations faced as they navigated federal relief programs,

I made some very hard decisions, very quickly, and so, by the end of April or middle of April I had decided to lay off four people and to not renew contracts for two part-time people. So that was really within a month that I made those decisions. - Arts and Culture Service Organization interview, March 2021

However, even for those who retained their jobs, it did not mean that work continued at the same level of pay, with one nonprofit arts organization executive stating,

Just to say that also regardless of the PPP loan, every one of our full-time staff members took a salary cut and are at that cut rate [of pay] to this day. - Nonprofit Museum Executive Director interview, April 2021

Given the prolonged pandemic shutdown in NYC, the financial benefits of the PPP were positive but as one respondent noted, “[I]t was a drop in the bucket.”

7.3 EIDL Interpretive Effects

Ultimately, the limitations of the EIDL program were reflected in the survey findings. In contrast to the PPP, the EIDL application process generally did not cause confusion. There was, however, a crucial exception: the EIDL grant advance. Of the organizations that accepted both PPP and EIDL loans, 11 of 19 were not aware that if they received both the PPP loan and the EIDL grant advance, that the EIDL grant advance would need to be repaid. Qualitative comments on the survey reflected confusion and frustration about this:

Seems unfair that the $10,000 EIDL [advance grant] provided is being deducted from our PPP forgiveness.

And another said,

We were not clear that [the EIDL advance grant] would be combined with PPP. Luckily, when we were told we’d have to pay it all back, we set up payments and started paying.

That ability to pay was limited, as indicated by nearly two-thirds of organizations reporting that repaying the loan would have had significant impacts on their operations (see Figure 5).

7.4 EIDL Resource Effects

In contrast to the high application rate for PPP loans, only 41 organizations (27 %) applied for an EIDL, which reduced to 30 (20 %) accepting the loan. Of the organizations that accepted the loan, about half found it “extremely beneficial” or “very beneficial.” This contrasts starkly with the PPP in which 89 % of organizations found the program “extremely beneficial” or “very beneficial.”

Multiple survey comments explained that, as a loan, the EIDL was a mismatch for organizations because they were not sure they would survive the pandemic shutdown. Survey respondents stated in open-ended responses,

A loan is not beneficial. I need a grant. If I can’t get a grant to pay off this loan, I will file bankruptcy and close.

Another respondent emphasized the point,

We do not need loans! We need grants!

This finding demonstrates the mismatch of nonprofit arts and culture needs and the loan program. Because of this mismatch, EIDL resource effects were minimal. One executive director of a large organization interviewed (March 2021) whose organization accepted an EIDL had the financial capacity to accept the loan and hold it in case the organization needed it. With the low fixed interest rate, they decided it was a strategic move for sustaining the organization. However, no other study participant reported a similar experience.

8.1 Limitations

NYC is the largest nonprofit arts and culture sector in the country, which made it an ideal choice for a case study; however, it is a case study with limited generalizability. Future research requires a national study to document arts and culture responses to pandemic closures to determine if our findings are specific to NYC or can be applied more broadly. Study designs need to include organizations that did not apply for pandemic relief. Many factors may have created insurmountable burdens to access resources including the PPP chaotic rollout, the lack of an application form adapted for nonprofits, lack of banking relationships with SBA-approved lenders, and lack of clarity on PPP loan forgiveness criteria. It also may have been due to insufficient administrative capacity to overcome the barriers.

While beyond the scope of this study, studies are needed to assess longer-term effects that combine the self-reported data with data from non-respondent sources. Our study relies on self-reported data, which have limitations. Six months into the pandemic, respondents drew on memory and their diligence in reviewing records to provide accurate data.

The exploratory nature of pandemic-related research resulted in several limitations to the analysis. Most notably, organizations that closed during the pandemic may have been less likely to fill out the survey and may thus be underrepresented. Similarly, smaller organizations with fewer resources may not have had the capacity to complete the survey.

Our research found stark access differences among the five NYC boroughs. The relatively sparse funding of outer boroughs (see Figures 2 and 3), primarily low-income or minoritized areas, displays the shortcomings of PPP’s reach. We need to understand why arts and culture organizations in minoritized and low-income areas did not apply. Future research should include both those who applied and those who did not to apply to more fully understand the reasons for low participation.

We collected data on identity demographics (e.g., race, ethnicity, age, gender, sexual orientation) of organizational leadership but our sample size did not permit statistical analyses to examine the effects leadership identity may have had on outcomes. We included 16 semi-structured interviews with government officials, support organizations, and sector leaders to gain additional insights into the broader impacts on the sector but our interviews were not sufficient to allow for analysis of leadership identity impacts. Additional research is needed to understand disparities in access and impacts within the arts and culture sector.