BLOG / 04.03.20 /Eric P. Blaha,Kenneth R. Jacobs,Emanuela Lupu,Thomas W. SmithandDomenick J. Tammaro
Coronavirus: PPP FEVER- NEW APPLICATION FORMS!
PPP applications were made available on Tuesday night. By Wednesday, approved SBA lenders were overwhelmed with requests for assistance. This morning, Treasury issued new application forms that are completely different from the old ones! [CLICK HERE FOR APPLICATION]
Meanwhile, we are getting the following feedback from lenders and asset managers:
1. They will give first priority to customers. They are not offering to handle anyone else.
2. They have not received any meaningful guidance from Treasury. [Update – Treasury has issued “Interim Final Rules” which were supposed to help clarify who can apply and how loan amounts are calculated, among other things, but still leave a lot of questions unanswered. [CLICK HERE FOR INTERIM FINAL RULES] We are advised that none of the large banks (like Chase, Wells Fargo) are processing applications as of this morning (lucky for them).
3. Borrowers should not panic. If the amount authorized by Congress is insufficient, they expect Congress to authorize additional funds.
4. The focus for use of these funds will be maintaining payroll.
Where to Apply; Where to Get Help. While the PPP is a windfall for borrowers, it is not a big profit center for lenders, even though Treasury Secretary Steve Mnuchin has raised the interest rate on loans from .5% to 1%. Prospective borrowers may have trouble finding a lender willing to process their application. If you’re a community association, though, you may have some options:
1. Contact your Managing Agent. Many managing agents keep your building’s funds with an approved SBA lender. So directly or indirectly, you are a customer of the bank, and your managing agent may be able to leverage the relationship into an agreement by the bank to process your application. If your bank won’t cooperate, your agent might consider changing its depository relationship to one who will.
2. Contact your Bank. If you’re a customer of the Bank, they’re going to want to keep you happy. Your lender may offer to process or your application themselves. If they’re not approved SBA lenders, they are also likely to be looking for a partner to handle the flood of applications that they are receiving to maintain good will.
3. Contact your Attorney. Your attorney may keep substantial deposits with a lender – either its own funds or down payments for residential sales. They may be able to assist you to find a lender willing to take your application.
4. Consider a Different Type of Loan or a Grant. The federal government is offering Economic Injury Disaster loans (EIDL) and emergency grants. [More on these in another memo.] The EIDL loan does not offer forgiveness, but may be quicker and more flexible than the PPP program.
Will NYS Co-ops Qualify for the PPP? Private co-ops in NY State are mostly organized under the “Business Corporation Law” and operate like other multi-family “business concerns.” But Co-ops in most other states are organized as non-profits, and in a conference call with lenders on Thursday SBA didn’t acknowledge this key difference, and actually opined that “cooperative organizations” would probably not qualify for PPP loans because they are not 501(c)(3) non-profits, so the law would need to be changed. We urged them to emphasize to the SBA that NYS Co-ops are NOT organized as non-profits and need the money as much as any other building owner — if not more.
We will keep everyone advised of the SBA’s position. In the meantime, contact your federal representatives to make sure that private cooperatives in New York are not classed with non-profits in other states.
Will HOA’s Qualify? Many Homeowners Associations are organized under the Not-for-Profit Corporation Law, so they have an additional strike against them from the point of view of the SBA. Private HOA’s also frequently seek exemption from taxation under IRC Section 528, not 501(c)(4), but Section 528 might also considered a form of “non-profit” taxation. The new rules state that “businesses” qualify. We will need to see what the SBA says on the topic.
How About Condos? Condo associations are also “business concerns” that manage common property for the benefit of their members. However, in New York State, Condos are considered “unincorporated associations.” Condos also frequently seek exemption from taxation under Section 528 of the Code, which might affect the SBA’s view of their eligibility.
Bottom Line: While waiting for definitive guidelines to come out, Co-ops, Condos and HOA’s may need to do some lobbying in Washington to protect their interests. Do it now.
We will continue to keep you updated on new PPP developments. If you need assistance on any of our topics, please contact one of our partners on our Co-op/Condo team.
Ken Jacobs firstname.lastname@example.org
Tom Smith email@example.com
Emma Lupu firstname.lastname@example.org
Domenick Tammaro email@example.com
Eric Blaha firstname.lastname@example.org