The Paycheck Protection Program (PPP) is a short-term loan program administered by the Small Business Administration (SBA) to help small businesses with 500 employees or fewer who have been affected by the COVID-19 pandemic.
In early 2020, many businesses across the country were ordered to close shop or severely curb their operations for months to limit the disease’s spread. PPP loans were established as a lifeline to help small businesses weather this disruption without mass worker layoffs.
Although the loan program was intended to benefit and support small- and medium-sized businesses, franchises and corporations with affiliated businesses discovered loopholes to their benefit. These large companies were able to secure substantial PPP loans and deplete the $349 billion in allocated funds before many small businesses had a chance to apply.
In June 2020, Congress signed a revised PPP into law with new guidelines on allocating an additional $310 billion in funding. With the new bill, known as the Paycheck Protection Program Flexibility Act (PPPFA), lawmakers hoped to get more funds into the hands of business owners that needed them the most.
The SBA stopped accepting PPPFA applications Aug. 8, 2020; however, Congress is working to pass a new stimulus package to extend the program. Differences are likely, but many of the eligibility requirements will be similar to PPPFA guidelines, explained in more detail below. Let’s take a closer look at what businesses are eligible for PPP loans.
Basic PPP Eligibility Requirements
A business must have been operational as of Feb. 15, 2020, to be eligible for a PPP loan. Additionally, it must fall into one of the following business categories:
- A small business with 500 or fewer U.S.-based employees
- A designated tribal business, a non-profit 501(c)(3), or a 501(c)(19) veteran’s organization with 500 or fewer U.S.-based employees
- A self-employed person with no additional employees who operates as an independent contractor or sole proprietor
Even if you have taken advantage of other disaster relief funding, like an Economic Injury Disaster Loan (EIDL) or an SBA Bridge Loan, you will still likely be eligible to apply for a PPP loan if Congress reauthorizes the program.
Furthermore, a larger organization with 500-plus employees may qualify for PPP if it meets one of the following SBA small business size standards:
- Has an employee count that falls within the small business size standard for its particular industry
- Meets the SBA’s alternative size standard based on a net worth under $15 million as of March 27, 2020, and an average after-tax net income of less than $5 million per year over the last two fiscal years
How Is Employee Count Calculated?
It can be complicated for some businesses to determine how many workers they employ since this number continually changes. When establishing a business’s PPP loan eligibility, the SBA considers your employee count as the average number of employees for each pay period during one of the following intervals:
- The last 12 months prior to your application submission
- The 2019 calendar year
- Your entire operational history, if you’ve been in business for less than a year
All employees are counted equally, regardless of whether they are working part- or full-time.
You must also include employees at any of your company’s affiliate businesses in this count. Two companies are considered affiliates if one can control the other through majority-ownership or if they are both controlled by the same outside entity.
Affiliate Rule Exemptions
PPP guidelines allow for certain companies to exclude affiliate business personnel from their total employee headcount. By doing so, these firms may become eligible for PPP benefits despite being otherwise too large to qualify:
- Any business that has accepted monetary assistance from the Small Business Investment Company (SBIC) program
- Franchise operations with an SBA-issued franchise identifier coder
- Faith-based organizations
- Hotels and restaurants that operate in the Accommodation and Food Service industry (according to the NAICS code list) and have fewer than 500 employees at each location
Loan Necessity Certification
The ease with which larger corporations could take advantage of the affiliate rule exemptions was a shortcoming of the original PPP guidelines. Many franchises, restaurant chains, and large hotels successfully applied for loans, even though they had other assets and safety nets to keep them afloat through the temporary pandemic shutdown. Critics argued that this violated the spirit of the law by depriving small businesses of urgently needed funds.
The SBA sought to rectify this oversight by supplying new guidelines regarding the loan necessity certification — a self-reported statement issued by business owners certifying they require the loan to remain operational and have no other resources to fill the gap. The SBA released these guidelines in its May 5, 2020, Frequently Asked Questions supplement.
Businesses that received $2 million or more in PPP funds will be automatically audited to confirm the money was needed to avoid layoffs and keep the company afloat. Firms that intentionally mislead the SBA could face criminal charges for false PPP loan application certifications.
Contact Revenued to Learn More About Eligible Businesses
Congress established the Paycheck Protection Program with specific rules regarding small business eligibility. In general, the program was designed to assist small businesses with fewer than 500 employees. Larger companies may have also been eligible through the affiliate rule exemptions and the loan necessity certification process.
Fill out our online form to be the first to learn when SBA funding is again available. To apply for SBA PPP loan forgiveness, call (855) 943-5363.
With more than 130,000 PPP loan applications processed in 1,000 different industries and more than $1.3 billion in loans issued, Revenued will help you get the money you need.
For updated Paycheck Protection information, please click on the links below. Be sure to consult with an attorney, CPA, or advisor prior to making financial decisions.
U.S. Congress — PPP Bills
Benefits.gov — Everything You Need to Know About the Paycheck Protection Program
Small Business Administration — Paycheck Protection Program
U.S. Department of the Treasury — CARES Act
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