The new guidance comes after industry groups raised concerns that many small construction companies seemed to be ineligible for PPP loans under the SBA’s new loan program. While the recently enacted Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, indicated that firms with 500 or fewer employees could qualify for PPP loans, the SBA’s subsequent Interim Final Rule suggested a more stringent standard for certain industries, among them the construction industry. Specifically, the Interim Final Rule indicated that qualifying businesses not only must stay below the 500-employee limit, but also must satisfy the eligibility requirements of existing SBA assistance programs, which impose annual revenue limits based on the types of construction work applicants perform. For example, under the existing size standards, in order for a company that performs commercial and institutional building construction to qualify as a “small business”, it can generate no more than $39.5 million in average annual revenue, while for specialty contractors such as masons and electricians the limit is $16.5 million.
In its recent guidance—which, as of this date, may be relied on as the SBA’s interpretation of the CARES Act and the Interim Final Rule—the SBA clarified that companies do not need to comply with both the workforce size limit and the applicable revenue limit; rather, they can be eligible for PPP loans by satisfying either the 500-employee threshold or the annual revenue ceiling. In other words, an entity may qualify for a PPP loan even if it exceeds revenue limits that would otherwise apply under the existing SBA standards, so long as it has 500 or fewer employees. Alternatively, a business may be eligible for a PPP loan by virtue of its compliance with the applicable SBA revenue limit, even if it has more than 500 employees.
Under the SBA’s $349 billion initiative, small businesses are eligible for loans of up to $10 million, which will be forgiven if they satisfy certain requirements, including using at least 75% of loan proceeds to cover payroll costs.
The SBA Focus Group of the COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the PPP loan program is implemented.