SBA Relaxes PPP Loan Requirements for Coronavirus Relief

On March 27, 2020, Congress enacted an unprecedented $2 trillion stimulus package, called the Coronavirus Aid, Relief and Economic Security Act (CARES Act), aimed at assisting people, states, and businesses nationwide that have been devastated by the coronavirus pandemic.

As part of the CARES Act, the U.S. Small Business Administration (SBA) was authorized to issue special loans to employers in need of financial assistance. Through two rounds of funding, approximately $659 billion has been allocated to the Paycheck Protection Program (PPP), intended to provide short-term financing to small businesses that would otherwise be forced to lay off employees, and in some cases close the doors, as workers continue to stay home as a result of the outbreak. As of the date of this article, approximately $100 billion is still available in the fund.

Under the PPP, eligible businesses include all businesses — including 501(c)(3) nonprofits, 501(c)(19) Veterans organizations, Tribal concerns, sole proprietorships, self-employed individuals, and independent contractors — with 500 or fewer employees, or no greater than the number of employees set by the SBA as the size standard for certain industries. As for the construction industry, now more than ever, cash flow is essential to short-term and long-term sustainability. However, in addition to the size requirements, construction companies seeking a PPP loan were also required to ensure that their annual revenue would stay within SBA-set limits that the agency typically uses to determine eligibility for other SBA loans.

Understandably, with unanticipated delays and ever-changing plans to “reopen” varying from state to state, construction companies have been faced with the difficult task of providing thorough and accurate information regarding anticipated annual revenue numbers when applying for PPP loans. On April 4, 2016, the Associated General Contractors of America (AGC) recognized the difficulty construction companies faced to obtain much needed financial assistance and urged federal officials to revise the rules in order to encourage construction companies to seek assistance.

As discussed below, in response to the AGC, the U.S. Treasury Department issued new guidance that cleared the way for construction companies to apply for loans through the PPP, and in recognition of the growing need for additional funding and further expansion, Congress revised a number of PPP qualifiers and loan requirements.

The New “Either/Or” Standard

Initially, construction companies were required to meet both the workforce-size and annual revenue limits, which caused many construction companies to balk at PPP assistance. However, on April 6, 2020, the Treasury Department issued formal guidance stating that in order to be eligible for a PPP loan, construction companies must now meet either the 500-employee threshold or the annual revenue ceiling, but would no longer be required to meet both criteria.

The Payroll Percentage Reduced

When the PPP was first introduced, it required all borrowers to use 75 percent of the loan for payroll purposes and further required companies to retain and bring back furloughed or terminated employees in order to qualify for loan forgiveness. In many states around the country, however, construction crews were not permitted to work, making it difficult for companies to spend the required amount on payroll expenses.

Now, with revisions and expansions from Congress, the payroll percentage threshold to qualify for forgiveness is lower, at 60 percent, which allows construction companies to spend more of their PPP loan on other much needed business necessities. Additionally, under the new terms of the PPP, companies are only accountable for the percentage under 60 percent that is not used for payroll purposes at a 1 percent interest rate.

The Time Frame for Spending

Under the initial PPP requirements, construction companies had eight weeks to spend their PPP funding on qualifying payroll expenses. However, for construction companies and materials suppliers, it was difficult to spend 75 percent of their loan on payroll expenses in the face of uncontrollable and unavoidable delays in such a short time frame. Under the relaxed PPP requirements, companies are now given 24 weeks for such spending, which provides much needed relief for small- to mid-sized construction companies. Construction companies who have already obtained PPP funding should contact their lender to request an extension under the new rules.

The Hire-Back Deadline

With the exception of employees that were unwilling to return to the jobsite, the PPP originally required businesses to re-hire furloughed or terminated employees by June 31, 2020. Under the new rules, the period to re-hire employees has been extended to December 31, 2020, and still allows a company to qualify for forgiveness even if it is unable to fill a vacated position due to specialization, such as licensed architects and engineers, or employee refusal.

The PPP Application and Repayment Deadlines

The original application deadline for the PPP was June 31, 2020. From the time the PPP was introduced, up until the recent revisions and expansions, nearly 5 million companies applied for relief. Such high demand, coupled with rumors that funding was severely limited, caused many construction companies to pass on applying for a loan. Today, however, approximately $100 billion is still available to qualifying companies and the application deadline has been extended to December 31, 2020.

In situations where a company could not qualify for loan forgiveness, the previous version of the PPP required loan repayment within two years of receipt. That repayment period has now been extended to five years, allowing greater relief to companies who may not be able to qualify for full forgiveness in the future. Construction companies in need of financial assistance should contact a local lender to learn about the application process and to ensure that all proper forms and agreements are in place to qualify for forgiveness or an extended payback period.

Payroll Tax Deferral or PPP Loan?

Under the original PPP requirements, construction businesses were faced with deciding whether to defer payroll taxes or apply for a PPP loan. The new rules, however, allow companies to apply for a PPP loan and file for a payroll tax deferral, providing significant relief for large construction companies and suppliers.

What Remains the Same?

The maximum amount available to each borrower is equal to the lesser of (a) $10 million or (b) 2.5 times its average total monthly payroll costs, as defined in the CARES Act. Unlike most typical SBA loans, these loans are unsecured loans requiring no collateral, no personal guarantee, and no showing that credit is unavailable elsewhere. To the extent not forgiven, the loan has a maximum 10-year term and the interest rate may not exceed 4 percent. The current interest rate, as stated above, is 1 percent if repayment is necessary.

Under the revised and expanded PPP rules, construction companies, contractors, and suppliers have been provided additional opportunities to obtain much needed financial support for essential business functions. Construction companies that have already obtained a loan through the PPP, or those that intend to seek assistance through the PPP in the future, are encouraged to contact an attorney and a local lender to take advantage of the relief offered under the CARES Act and to ensure that all PPP requirements are satisfied.

About the author: Keith A. Boyette is an attorney with Anderson Jones, PLLC in Raleigh, North Carolina, a law firm with attorneys licensed in North Carolina, South Carolina, and Georgia. For more information or questions about this article, please email him at kboyette@andersonandjones.com.

Author’s note: This article is intended only for informational purposes and should not be construed as legal advice.

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