Condo Co-op PPP Eligibility Advisory Update
In our April 2 Advisory, we advised that financial assistance under the Paycheck Protection Program (PPP) may be available to cooperatives and condominiums. The PPP was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide loans to benefit small businesses adversely impacted by the COVID-19 pandemic.
Since our Advisory, the Small Business Administration (SBA) issued new interim rules and an updated loan application. Among the changes are references to earlier SBA publications that could be interpreted to make cooperatives and condominiums ineligible for these loans, and a new requirement that applicants certify their eligibility for the loan, with penalties for false certification.
The Real Estate Board of New York and others are seeking clarification on the eligibility question, but PPP loans are being given on a first-come, first-served basis and will be available only until June 30, 2020, or upon exhaustion of the funds allocated to this program. Boards that do not want to risk missing the opportunity to apply for PPP assistance by waiting for clarification may want to consider applying for a PPP loan now with the attached eligibility statement added, modified, as required, for your own circumstance. In it, we explain the basis for concluding that cooperatives and condominiums are entitled to benefits and, to the extent required, request an exception to earlier policy, something specifically contemplated by the SBA’s Standard Operating Procedures.
The PPP loans are not for every business, even though it may be eligible. The application includes a representation that “the current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Each Board should consider whether its needs justify completing an application for the PPP loan, and whether it can make this representation in good faith.
Before submitting a loan application, cooperative and condominium governing documents should be reviewed to determine whether there are any restrictions on the board’s authority to borrow money and, therefore, to seek a PPP loan. Every cooperative or condominium that presently has a loan outstanding must also review its existing loan documentation to determine whether the consent of their current lender will be required.
Armstrong Teasdale attorneys are actively monitoring and providing updates regarding the impact of COVID-19, including the PPP and other provisions of the CARES Act. Should the SBA provide additional guidance, we will be sure to update you. For additional information, visit Armstrong Teasdale’s COVID-19 Resource Center.