Consolidated Appropriations Act Brings Changes to PPP for Cooperatives
On Dec. 21, 2020, Congress passed the Consolidated Appropriations Act which, among other things, included changes to the Paycheck Protection Program (PPP). As described in our prior advisories – Condos and Co-ops and the Paycheck Protection Program and Condo Co-op PPP Eligibility Advisory Update – the PPP was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide forgivable loans to benefit small businesses adversely impacted by the COVID-19 pandemic.
The changes to the PPP specifically confirm that housing cooperatives are eligible for PPP loans, clarifying an issue affecting the first round of loans. No change was made regarding condominiums and homeowners associations, so their eligibility remains uncertain, and we refer you to our April 6, 2020, advisory for additional information.
While the Small Business Administration (SBA) rules and guidance have not yet been issued, based on the summary issued by the pertinent Congressional Committee, the changes impose new rules for borrowers which already received an initial PPP loan and wish to seek a second loan. Borrowers applying for a second loan must have fewer than 300 employees and have gross receipts during any quarter in 2020 that reflect at least a 25% reduction from the gross receipts of the company during the same quarter in 2019.
Boards should keep in mind that, while the new SBA applications are not yet published, we expect that all borrowers will still need to certify that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Boards should consider whether they can make that certification in good faith. For example, if a building has a commercial tenant that is in arrears or if the Board has agreed to substantial rent deferrals, abatements or reductions, the Board may be able to make the certification, but Boards that have not experienced any unusually high collection losses may not.
As a reminder, 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 that presently has a mortgage or other 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.