Covid-19: Christmas Presents for Co-ops – Paycheck Protection Program (“PPP”) Amended to Allow Loans to Cooperatives
The Omnibus Spending Bill newly passed by Congress includes a provision specifically making housing cooperatives eligible for PPP loans. No matter what the bill ultimately looks like when it becomes law, we expect that provision to remain. As a result, cooperatives can now apply for PPP loans without fear of rejection. The amendments also apply retroactively.
Reservation of Funds for “Small” Businesses Could Help Co-ops. The bill specifically reserves at least $15 billion of the increased appropriation for eligible businesses with fewer than ten (10) employees. There are also simplified procedures for applying for and getting forgiveness for loans of less than $150,000. However, the maximum amount of a loan is still basically 2.5 times monthly payroll.
Contact your bank for an application. By now, your lender either has been authorized to make PPP loans directly, or has hooked up with an SBA loan specialist who can process the application on your lender’s behalf. Funds are not unlimited, so you should act soon.
Differences between April and December bills. For those few of you who didn’t hold onto our PPP guidance our April COVID updates, note that the use of funds has been liberalized in some material ways, including (a) only 60% of the funds must be used for payroll (the balance still must be applied to eligible uses); (b) covered uses of funds now include (among other things) payments for personal protective equipment for employees, capital expenditures to comply with federal COVID guidelines, payments for group health insurance for employees, and payments for protection against “public disturbances” not covered by insurance; and (c) the borrower cannot have more than 300 employees.
Are Condominiums and HOA’s Included? We have asserted repeatedly in these newsletters that Condos and HOA’s should be deemed “business concerns” to the extent that they have payroll and maintain their premises to protect their residents. With the addition of specific language including “housing cooperatives” to the list of qualifying concerns, though, our legal argument has weakened; specifically including one type of community association could imply that the drafters meant to exclude other types. (On the other hand, a recent Bankruptcy Court decision determined that Condo associations should be deemed commercial enterprises for purposes of the Bankruptcy Code.) Senator Schumer has indicated that he will try to persuade Congress to expressly incorporate condos and HOA’s into the language in future bills.
“Second Draw” Loans. The PPP also allows businesses to apply for a second PPP draw, provided (among other things) that their gross receipts for the quarter have decreased by 25% over the same quarter a year ago. While this could help charities and other non-profits whose contributions have diminished, we do not know of any community associations who have suffered to that extent.
Note: We could not find any definition of “Second Draw” loans. Therefore, it is not clear whether this refers to businesses that have already received PPP assistance, or whether “Second Draw” refers to the second PPP funding, i.e., all of the additional funds allocated under the program. For reasons beyond the scope of this E-Blast, we think that first-time co-op borrowers would be eligible for PPP funds regardless of any changes in their income. However, if it is the latter, then the 25% drop in income requirement would still freeze most co-ops out.
Other News. Believe it or not, new laws and court decisions have come down having nothing to do with COVID 19. We will update everyone in on some of these in our next mailing.
We will continue to keep you updated on PPP and other developments. If you need assistance on any of our topics, please contact one of our partners on our Co-op/Condo team.
HAVE A HAPPY HOLIDAY AND WONDERFUL NEW YEAR!