BLOG: Do You Meet the Unique Eligibility Requirements for a PPP Loan?

April 20, 2020

By Jon Williams
Practice Areas: Government Contracts Law and Small Business Programs & Advisory Services

If you missed the first batch of loans under the Paycheck Protection Program (“PPP”) and want to determine if you are eligible for the next wave of funding that is expected to be added soon, this is what you need to know.

Not surprisingly, given this is a very sought-after program, PilieroMazza attorneys are fielding a lot of questions from firms wondering if they qualify for a PPP loan. There are several requirements that need to be considered when assessing eligibility for the PPP, such as whether the nature of the business falls into one of the categories that SBA has determined are ineligible for SBA’s loan programs according to its business loan eligibility rules.  You also have to assess your company’s need for the loan given the current economic uncertainty, and the type of business and nature of your personnel/payroll obligations because the amount of the PPP loan is based on payroll costs.  And, of course, the loan applicant must qualify as a small business.

To qualify as a small business for the PPP, the CARES Act created a new small business eligibility threshold that allows any business to qualify as long as the business does not have greater than 500 employees who live in the U.S.  A firm can also qualify as small for the PPP loan if it is considered a small business under SBA’s revenue or employee-based size standard applicable to the industry in which it operates, or based on an alternative size standard unique to SBA’s business loan program that is based on the firm’s tangible net worth and average net income over the past two years. 

Whenever we’re talking about small business eligibility for federal programs, we also have to consider SBA’s affiliation rules.  A business may be small on its own based on its employees or revenue, but SBA may not consider it to be an eligible small business if the business has affiliates according to how SBA defines affiliates.  When a business has affiliates, SBA includes the employees or revenues of the affiliate when determining the business’ size.    

SBA has unique affiliation rules applicable to its business loan programs.  While the business loan affiliation rules are similar in many respects to SBA’s affiliation rules for federal procurements, there are several important differences.  Moreover, unlike the affiliation rules applicable to federal procurements, there is almost no SBA administrative case law specifically interpreting SBA’s business loan affiliation rules.  SBA’s affiliation rules contain exceptions from affiliation for certain circumstances, and the CARES Act added three new affiliation exceptions.  The new affiliation exceptions from the CARES Act apply to firms operating in NAICS sector 72, franchises with a franchise identifier code, and firms that receive financial assistance from a Small Business Investment Company.

On top of this, everything seems to be moving at the speed of light since the passage of the CARES Act, with evolving requirements and understandings seemingly each day.  All of this can leave firms struggling to understand if they are eligible and how to take advantage of the PPP, particularly for the firms with more complicated ownership and governance structures such as those common in private equity and venture capital backed entities.  Given the likelihood of scrutiny on the PPP loans down the road, particularly for borrowers that seek or obtain forgiveness of the loan, it is critical to assess your eligibility under the unique small business requirements for the PPP before you apply for the loan.  

There are many helpful and free resources about PPP loans online, which you can access on our COVID-19 resources page here.  If you have specific questions about your small business eligibility for a PPP loan, please do not hesitate to contact the blog’s author, Jon Williams at jwilliams@pilieromazza.com. Mr. Williams is a partner in PilieroMazza’s Government Contracts and Small Business Programs & Advisory Services practice groups.

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