Confusion Remains as Paycheck Protection Program Runs Dry

April 15, 2020 |

Updated December 15, 2020

3 minute read

On April 3, lenders began accepting applications for the highly anticipated Paycheck Protection Program (PPP) loan administered by the Small Business Administration (SBA) and established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Just 13 days after it began accepting applications, the PPP has run out of funding. On April 16, the Small Business Administration notified borrowers and lenders that it would no longer be able to accept new applications based on available funding. With millions of small businesses still seeking relief through the program, Congress is rushing to replenish the PPP. Unfortunately, COVID-19 continues to interfere with Congress’ ability to move forward on important legislation.

The $349 billion financing vehicle, housed under the SBA’s standard 7(a) loan program, was established primarily as an employee retention tool for businesses to use in lieu of mass layoffs or furloughing. The loan may be forgiven if businesses are able to maintain employee and compensation levels during the 8-week loan period, however only up to 25 percent of forgivable loan proceeds may go towards rent, mortgage or utility obligations incurred prior to February 15.

The growing interest in these loans, as well as a lack of operational clarity and guidance from the SBA and the United States Treasury, has resulted in mixed experiences for lenders and borrowers alike. Moreover, there is widespread confusion amongst apartment industry professionals as to whether certain business type are eligible for relief.

Based on the National Apartment Association’s (NAA) analysis of the CARES Act and related guidance, the following entities are eligible for the PPP:

  • Business with 500 or fewer employees;
  • Businesses that meet the applicable SBA employee or revenue size standards; and
    • Lessors of Residential Buildings and Dwellings (less than $30 million in gross receipts annually)
    • Residential Property Managers (less than $8 million in gross receipts annually)
  • Businesses with more than 500 employees operating across multiple physical locations.
    • Provision carved out exclusively for Accommodation and Food Services Industries

The SBA Interim Final Rule references that ineligible entities can be identified in the Standard Operating Procedures (SOP) for all lenders participating in the SBA 7(a) program. The following entities are ineligible for the PPP:

  • Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds
  • Businesses that have entered into a management agreement with a third party that gives the management company sole discretion to manage the operations of the business
  • Apartment buildings and mobile home parks are not eligible

For more information on eligibility requirements for the multifamily industry, please see NAA’s PPP webinar presented by NAA and Womble Bond Dickinson.

Without further guidance or revision from the SBA and Congress, housing providers remain at risk both financially and operationally. NAA and the National Multifamily Housing Council (NMHC) have submitted a letter to Congress and the SBA addressing the urgent concerns of the multifamily industry:

  • The SBA and the Treasury must reverse its Interim Final Rule to expand eligibility to all multifamily firms. Access to the PPP will ensure that owners and operators continue providing a high level of service and consistent care for the millions of Americans living in rental housing.
  • Congress must amend the CARES Act to include multifamily businesses in the provision granting eligibility for businesses with more than 500 employees operating across multiple physical locations. Our industry operates under similar business models as those industries already granted eligibility by this provision. To ensure that all businesses and workforces are eligible for equal treatment under this law, immediate action must be taken.

NAA will continue to work diligently with lawmakers and regulators at all levels to ensure that the unique needs of the multifamily industry are understood and met. For more information on COVID-19 related advocacy issues, please visit our COVID-19 Policy Concerns page. For multifamily operation and compliance assistance, please visit our COVID-19 Resource and Guidance Center.