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Financial Services Law Insights and Observations

SBA, Treasury discuss borrower eligibility for PPP loans

Federal Issues Agency Rule-Making & Guidance Department of Treasury SBA CARES Act Small Business Lending Hedge Fund Covid-19 Liquidity

Federal Issues

On April 29, the Small Business Administration (SBA), in consultation with the Department of Treasury (Treasury) released two new frequently asked questions (FAQs) regarding the Paycheck Protection Program (PPP). The new guidance states that businesses in operation as of February 15, 2020 are eligible to apply for PPP loans, even if the business changes ownership after that date, as long as all other criteria are met. The SBA also plans to review each PPP loan of $2 million or more after the lender submits the small business borrower’s application for forgiveness, and states that as long as lenders follow the PPP lender requirements, all loans will retain the SBA guarantee no matter what the SBA review concludes. A joint Treasury and SBA statement suggests that because a “large number of companies” returned their PPP loans after the SBA issued guidance on PPP borrower loan certification (covered by InfoBytes here), the review of loans $2 million and above will “ensure PPP loans are limited to eligible borrowers.”

Earlier in the week, Treasury and the SBA added additional guidance in the FAQs addressing various other eligibility questions. These include:

  • Borrowers should refer to FAQ #31 (covered by InfoBytes here) to determine whether a small business “owned by large companies with adequate sources of liquidity to support the business’s ongoing operations” would be eligible to apply for a PPP loan;
  • Housing stipends or housing allowances to employees are compensation and should be included in the employer’s calculation of payroll costs;
  • To determine an employee’s principal place of residence, lenders and borrowers should consult IRS regulations (26 CFR §1.121-1(b)(2));
  • Agricultural producers, farmers, and ranchers can apply for PPP loans as long as the individual or entity meets certain criteria, including that it has 500 or fewer employees or $1 million or less in annual receipts;
  • Agricultural cooperatives and other cooperatives may apply for PPP loans as long as they meet all PPP requirements; and
  • Small business PPP loan applicants must count all employees—full-time and part-time—when calculating whether the small business has 500 or fewer employees.

On April 24, the SBA issued an interim final rule stating, among other things, that hedge funds and private equity firms are not eligible to apply for PPP loans, and that companies in private equity portfolios should consider whether they can make the required good faith certification of need for the PPP loans. In addition, small businesses in bankruptcy proceedings are not eligible to apply for PPP loans.

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