(PLEASE NOTE: PPP Loan info changes regularly. For the most up to date info, please visit the SBA website.)
The Paycheck Protection Program was introduced to help small businesses struggling due to Covid-19 hardships. The PPP Loans can be spent on Payroll and other eligible operating expenses. It was aimed to boost employee retention and rehiring during and after the covid-19 crisis.
The PPP loan program has faced some criticism due to funds approved for larger companies with adequate resources. The SBA has warned such businesses to apply for the PPP loans only if they meet certain conditions. Many large businesses had to return the PPP loans received in the earlier days.
PPP Loans Qualification Criteria
The SBA provides detailed criteria for the qualification of PPP Loans for small businesses. This phase of PPP loan funding has two draws. For the First Draw PPP loans, only those businesses can apply that have not received funding earlier. For the second draw PPP loans, businesses that have received funding earlier can also apply, provided applicants meet eligibility criteria.
Some key points for small business eligibility for the PPP loans are:
Businesses with 500 or fewer employees with a place of residence inside the US.
Sole proprietors, Self-employed, and independent contractors.
501 c (3), non-profit organizations, 501 c (19) veteran organizations, or tribal businesses 501 b (2) c.
Businesses with NAICS code 72 (food and accommodation) with multiple locations and with less than 500 employees at each location.
Businesses with more than 500 employees provided they meet the alternative industry or standard size criteria.
Businesses with a tangible net worth of less than $15 million and net profits of $5 million before the pandemic are eligible.
Large Companies with Adequate Resources
In some cases, businesses owned by larger companies may also qualify for the PPP loans by meeting the eligibility criteria. If a business owns multiple subsidiaries, branches, or franchises and has adequate financial recourse, it may still qualify for the PPP loan technically.
The SBA has clearly stated that businesses applying for the PPP loans must also assess the economic need. The SBA may ask for certification of good faith from larger businesses to prove their economic need for the PPP loan.
With recent updates, the CARES act suspends the condition of the inability to secure loans from elsewhere. However, large businesses with adequate financial resources are capable of obtaining private and bank loans. The SBA and the Treasury encourage such businesses to refrain from applying for the PPP loans.
Affiliate Rules and Exceptions
If a business owns another company through significant control or is affiliated with another business and has the power to control, they will be considered affiliates. The control can arise from ownership through stocks, preferred stocks, convertibles, Stock options, and merger or acquisition agreements. The total number of employees will be counted for the affiliated businesses combined. The number of employees for affiliated businesses must not exceed 500. Alternatively, the affiliate businesses must not exceed the standard or industry size definitions as stated by the SBA.
Exceptions from the Affiliate Rules
Under the SBA rules, some businesses are exempted from the affiliate rules for the maximum number of employees. These businesses can have more than 500 employees and are eligible to apply for the PPP loans as separate business entities.
Businesses with NAIC code starting from 72 (Food and Accommodation Industry).
Any businesses with a franchise system and an SBA franchise identifier code.
Businesses that have received aid from a small business investment company.
Many large organizations with multiple branches or locations can apply for PPP loans as separate entities under the exception rules. Restaurant chains, hotels, motels, and other food and accommodation services have benefited from this affiliate exception rule.
The PPP Loan Necessity Certificate
The SBA has urged large businesses with adequate liquidity resources to assess their economic necessity. Large businesses with multiple locations and subsidiaries can still qualify for the PPP loans technically. However, the SBA and its lending partners may ask for economic necessity certification from applicants. All applicants must provide the necessity certificate in good faith to affirm their economic need for the PPP loan.
All borrowers must make the necessity certification considering their current economic conditions and their ability to access other liquidity resources. Large businesses have adequate liquidity resources and access to private and bank loans.