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Eligibility of Religious Organizations for the

CARES Act's Paycheck Protection Program

April 9, 2020
The recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contained a
number of provisions authorizing the Small Business Administration (SBA) to provide economic relief to
small organizations. One such provision, Section 1102 of the CARES Act, established the Paycheck
Protection Program (PPP), which expands the SBA's authority to guarantee loans under Section 7(a) of
the Small Business Act, discussed in more detail in this CRS Report. Another provision, Section I10 of
the CARES Act, expands the SBA's authority to grant Economic Injury Disaster Loans (EIDLs) under
Section 7(b)(2) of the Small Business Act, discussed in this CRS Report. After the CARES Act was
signed into law, there was some uncertainty about whether religious organizations, including churches and
other houses of worship, would be eligible for the new PPP or EIDL relief. On April 3, 2020, however, the
SBA issued a Frequently Asked Questions (FAQ) document clarifying that faith-based organizations,
including houses of worship, are eligible to receive SBA loans under the PPP and EIDL programs. This
Legal Sidebar discusses legal considerations related to religious organizations' eligibility for SBA aid.
Specifically, this Sidebar explores possible considerations under the Establishment and Free Exercise
Clauses of the First Amendment to the U.S. Constitution, both of which are implicated when public funds
are provided to religious organizations.

Statutory and Regulatory Authority Governing Section 7(a) Loans
According to the SB A, the 7(a) loan program is the agency's primary program for providing financial
assistance to small businesses. Section 7(a) of the Small Business Act authorizes the SBA to make and
guarantee certain types of loans. In practice, the SBA does not provide direct loans under its 7(a)
programs, but works with third-party lenders. Prior to the CARES Act amendments, the statute provided
that 7(a) loans were generally available to small business concerns, defined in regulation as certain
small for-profit businesses. Another regulation outlining what businesses are ineligible for 7(a) loans
excludes businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or
religious beliefs, whether in a religious or secular setting. When the SBA adopted this ineligibility
regulation in 1996, the agency explained that the exclusion of primarily religious businesses was driven
by Establishment Clause concerns.

                                                               Congressional Research Service

CRS Lega Sidebar
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