Navigating PPP Eligibility
Dear Clients and Friends,
The deadline for companies to return PPP funding is extended to May 14, 2020. However, there is continued confusion related to how a business is to determine their eligibility and they are left to navigate the rules established by three pieces of guidance:
- The CARES Act
- SBA’s Interim Final Rule (“IFR”) initially published by the SBA on April 2, 2020 and made effective April 15, 2020
- The Treasury’s Payment Protection Program Frequently Asked Questions (“PPP FAQs”) first published on April 3, 2020 with continual updates through May 3, 2020
Firstly, The CARES Act provision in the law is titled, “Increased Eligibility for Certain Small Businesses and Organizations” which clearly indicates Congress’s intent that the PPP would expand upon the existing 7(a) loan platform. It describes who qualifies for PPP loans: “any business concern” that employs 500 workers or less, or that alternatively meets “small business” sizing standards under the SBA’s “regular” loan programs”
The April 3, 2020 guidance from the PPP FAQ’s #2 and #3, affirms the broad PPP eligibility coverage in the CARES Act, stating: “Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of The CARES Act and of the IFR.”
It’s important to also note that the final version of the SBA PPP loan application makes no mention in its certification about ineligible businesses except those specifically identified on the application.
On April 15, 2020, an IFR was issued that sent mixed signal which seems to contradict both The Cares Act and the PPP FAQs. While nothing directly addresses the eligibility of any legitimate industry to participate in the PPP, it does include a “back door” reference to ineligible businesses that purport to try to apply to the PPP with its broader eligibility criteria. The specific language says: “Businesses that are not eligible for PPP loans are identified in 13 C.F.R. § 120.110 and described further in SBA’s Standard Operating Procedure (SOP) 50 10, Subpart B, Chapter 2.”
That specific regulation reference states that passive businesses owned by real estate developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds are ineligible for a loan under the 7(a) program. Furthermore, the SBA’s SOP Manual for the 7(a) program sets forth a range of commercial and residential real estate businesses that are deemed as ineligible for its “regular” lending programs. The PPP is not a regular lending program.
The CARES Act and PPP FAQs would appear to modify the list of ineligible businesses to allow any business with 500 employees or fewer to qualify, and therefore preempts the ineligible business rules. While the deadline to return PPP funds has been extended to May 14th, 2020 we have been hoping that the U.S. Treasury will be forthcoming with clarification to eliminate this confusion but as of yet nothing has been issued.
Please contact your BKM Sowan Horan team member with any questions.
Richard J. Sowan