SBA Clarifies Rules for Construction in PPP

On Tuesday, Treasury Secretary Steven Mnuchin asked Congress to add $250 billion more to the $349 billion already approved for the Paycheck Protection Program (PPP) in the Coronavirus Aid, Relief and Economic Security (CARES) Act due to high demand from small businesses. The Small Business Administration (SBA) also has released new guidance on who can qualify for PPP loans, which now includes many construction firms that were previously thought to be ineligible.

The Associated General Contractors (AGC) of America wrote a letter to the SBA asking it to clarify the criteria listed in its PPP interim final rule. The rule stated that a business must have 500 or fewer employees and fall below the agency’s small business size standards in order to qualify for the PPP. The AGC pointed out that construction businesses generally are determined by an average annual income threshold, not number of employees threshold. However, Congress declared that the program is open to all businesses that have 500 or fewer employees or fall below those size standards.

Yesterday, the SBA released new guidance that cleared up the confusion.

“Administration officials have done the right thing and revised their guidance to allow, as Congress intended, for firms that employ 500 or fewer people to qualify for the Paycheck Protection Program loans,” says Stephen Sandherr, the AGC’s chief executive officer. “This change means the program is now more likely to help smaller firms continue to operate and retain staff.”

The new guidance addressed whether a business has to qualify as a small business concern (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) in order to participate in the PPP.

“No. In addition to small business concerns, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standards for the industry in which it operates (if applicable),” reads the new guidance.

According to the SBA, any loan received through the PPP will be forgiven fully if the funds are used for payroll costs, interest on mortgages, rent and utilities. Due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll.