Eligibility

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Who is eligible for a PPP loan?

You are eligible for a PPP loan if:

  1. You, together with any affiliates (if applicable), are:
  • A small business concern under the applicable revenue-based size standard established by SBA in 13 CFR 121.201 for your industry or under the SBA alternative size standard; 
  • an independent contractor, eligible self-employed individual, or sole proprietor;
  • a business concern, a tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in section 501(c)(19) of the IRC, a Tribal business concern described in section 31(b)(2)(C) of the Small Business Act, and you employ no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by SBA in 13 CFR 121.201;
  • a housing cooperative, an eligible section 501(c)(6) organization, or an eligible destination marketing organization, that employs no more than 300 employees;
  • a news organization that is majority owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit public broadcasting entity with a trade or business under NAICS 511110 or 5151, that employs no more than 500 employees (or, if applicable, the size standard in number of employees established by SBA in 13 CFR 121.201 for your industry) per location; or
  • another type of entity specifically provided for by PPP rules (as described below); and
  1. you were in operation on February 15, 2020, and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099–MISC or you were an eligible self-employed individual, independent contractor, or sole proprietorship with no employees

 

The latest round of PPP loan funding provides separate eligibility requirements for new PPP loan borrowers vs. those who previously received a PPP loan, known as “Second Draw PPP Loan” customers. The SBA eligibility requirements of the PPP program are comprehensive and cover borrower characteristics such as number of employees, type of industry, date of operation, qualifying payroll cost or self-employed compensation, and other requirements. Applicants are responsible for understanding the PPP eligibility requirements and providing accurate information on the PPP loan application.

 

All PPP borrowers must:

 

  • Have been in operation on or before 2/15/2020, or were a seasonal employer that was dormant or not fully operating as of 2/15/2020 but was in operation for a 12-week period between 2/15/2019 and 2/15/2020.
  • Meet all additional SBA PPP eligibility requirements.

 

For businesses that will be taking out a First Draw PPP loan:

 

  • Employ 500 or fewer employees (or otherwise satisfy employee count / size standards contained in the SBA PPP eligibility requirements).
  • Meet all additional SBA PPP eligibility requirements.

 

For businesses that will be taking out a Second Draw PPP loan:

 

  • Employ 300 or fewer employees (or otherwise satisfy employee count / size standards contained in the SBA PPP eligibility requirements).
  • Have used or will use funds from their first PPP loan before disbursement of the second PPP loan.
  • Experienced at least a 25 percent revenue reduction in any quarter of 2020 relative to 2019.
  • Meet all additional SBA PPP eligibility requirements.

I Have Determined That I Am Eligible. How much can I borrow?

Under the PPP, the maximum loan amount for First Draw PPP Loans is the lesser of $10 million or an amount that you will calculate using a payroll-based formula authorized by the Act, PPP loans approved in 2020 used 2019 or the 1-year before the date on which the loan is made to calculate payroll costs for purposes of calculating the maximum loan amount. Borrowers who apply for PPP loans 2021 and who are not self-employed (including sole proprietorships and independent contractors) are also permitted to use the precise 1-year period before the date on which the loan is made to calculate payroll costs if they choose not to use 2019 or 2020. Since most borrowers will use 2019 or 2020 the rule text refers only to 2019 or 2020 for simplicity and readability.

How do I calculate the maximum amount I can borrow?

The following methodology, which is one of the methodologies authorized by the Act, will be most useful for many applicants.

  • Step 1: Aggregate payroll costs (defined in detail below in subsections 4.g. and 4.h.) from 2019 or 2020 for employees whose principal place of residence is the United States.
  • Step 2: Subtract any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred.
  • Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
  • Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5. v. Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any ‘‘advance’’ under an EIDL COVID– 19 loan (because it does not have to be repaid).

 

The examples below illustrate this methodology.

  • Example 1—No employees make more than $100,000
    • Annual payroll: $120,000
    • Average monthly payroll: $10,000
    • Multiply by 2.5 = $25,000
    • Maximum loan amount is $25,000
  • Example 2—Some employees make more than $100,000
    • Annual payroll: $1,500,000
    • Subtract compensation amounts in excess of an annual salary of $100,000:
    • $1,200,000 Average monthly qualifying payroll:
    • $100,000 Multiply by 2.5 = $250,000
    • Maximum loan amount is $250,000
  • Example 3—No employees make more than $100,000, outstanding EIDL loan of $10,000
    • Annual payroll: $120,000
    • Average monthly payroll: $10,000
    • Multiply by 2.5 = $25,000
    • Add EIDL loan of $10,000 = $35,000
    • Maximum loan amount is $35,000
  • Example 4—Some employees make more than $100,000, outstanding EIDL loan of $10,000
    • Annual payroll: $1,500,000
    • Subtract compensation amounts in excess of an annual salary of $100,000.
    • Multiply by 2.5 = $250,000
    • Add EIDL loan of $10,000 = $260,0000
    • Maximum loan amount is $260,000

Can I apply for a PPP loan if I started my business in 2020?

You can apply for a PPP loan only if your business was operational on or before February 15, 2020. If you started your business after February 15, 2020, you cannot currently apply for a PPP loan.

Can I get a PPP loan if I am on unemployment?

Being on unemployment does not disqualify you from applying for a PPP loan. Receiving a PPP loan by itself does not disqualify you for unemployment. If you meet the eligibility requirements for a PPP loan, you should apply for PPP funds since the amount of money you receive on PPP can be significant (up to $20,833 per loan for a self-employed person), far in excess of most unemployment programs.

 

However, you should be careful navigating both unemployment and PPP at the same time. If you are self-employed or a 1099 then you likely cannot use your PPP funds to pay yourself and continue to collect unemployment–because the payment you make to yourself counts as income, which in most cases will disqualify you from continuing to receive unemployment. But keep in mind you can spend your PPP loan on other expenses including other employees’ compensation, mortgage interest, rent, operating costs, and more. 

 

You may be able to get back on unemployment benefits after receiving your PPP loan, and we would recommend that you work with your local unemployment office.

I pleaded guilty to a felony crime a very long time ago. Am I still eligible for the PPP?

Eligibility for the PPP has been expanded. A business is ineligible due to an owner’s criminal history only if an owner of 20 percent or more of the equity of the applicant:

  • is presently incarcerated or, for any felony, is presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or
  • has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for, a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year.

Are agricultural producers, farmers, and ranchers eligible for PPP loans?

Yes. Agricultural producers, farmers, and ranchers are eligible for PPP loans if: (i) the business has 500 or fewer employees, or (ii) the business fits within the revenue-based sized standard, which is average annual receipts of $1 million. 

 

Additionally, agricultural producers, farmers, and ranchers can qualify for PPP loans as a small business concern if their business meets SBA’s “alternative size standard.” The “alternative size standard” is currently: (1) maximum net worth of the business is not more than $15 million, and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.

 

For all of these criteria, the applicant must include its affiliates in its calculations. Link to Applicable Affiliation Rules for the PPP.

Are agricultural and other forms of cooperatives eligible to receive PPP loans?

As long as other PPP eligibility requirements are met, small agricultural cooperatives and other cooperatives may receive PPP loans

What are the affiliation rules when determining the number of employees on my payroll?

For purposes of the determining the number of employees of an applicant to the Paycheck Protection Program, the applicant is considered together with its affiliates.

 

Concerns and entities are affiliates of each other when one controls or has the power to control of the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists. Affiliation under any of the four circumstances described below is sufficient to establish affiliation for applicants for the Paycheck Protection Program:

 

1. Affiliation based on ownership. For determining affiliation based on equity ownership, a concern is an affiliate of an individual, concern, or entity that owns or has the power to control more than 50 percent of the concern’s voting equity. If no individual, concern, or entity is found to control, SBA will deem the Board of Directors or President or Chief Executive Officer (CEO) (or other officers, managing members, or partners who control the management of the concern) to be in control of the concern. SBA will deem a minority shareholder to be in control, if that individual or entity has the ability, under the concern’s charter, by-laws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.

 

2. Affiliation arising under stock options, convertible securities, and agreements to merge.

  • In determining size, SBA considers stock options, convertible securities, and agreements to merge (including agreements in principle) to have a present effect on the power to control a concern. SBA treats such options, convertible securities, and agreements as though the rights granted have been exercised.
  • Agreements to open or continue negotiations towards the possibility of a merger or a sale of stock at some later date are not considered “agreements in principle” and are thus not given present effect.
  • Options, convertible securities, and agreements that are subject to conditions precedent which are incapable of fulfillment, speculative, conjectural, or unenforceable under state or Federal law, or where the probability of the transaction (or exercise of the rights) occurring is shown to be extremely remote, are not given present effect.
  • An individual, concern or other entity that controls one or more other concerns cannot use options, convertible securities, or agreements to appear to terminate such control before actually doing so. SBA will not give present effect to individuals’, concerns’, or other entities’ ability to divest all or part of their ownership interest in order to avoid a finding of affiliation.

 

3. Affiliation based on management. Affiliation arises where the CEO or President of the applicant concern (or other officers, managing members, or partners who control the management of the concern) also controls the management of one or more other concerns. Affiliation also arises where a single individual, concern, or entity that controls the Board of Directors or management of one concern also controls the Board of Directors or management of one of more other concerns. Affiliation also arises where a single individual, concern or entity controls the management of the applicant concern through a management agreement.

 

4. Affiliation based on identity of interest. Affiliation arises when there is an identity of interest between close relatives, as defined in 13 CFR 120.10, with identical or substantially, identical business or economic interests (such as where the close relatives operate concerns in the same or similar industry in the same geographic area). Where SBA determines that interests should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be one are in fact separate.

 

Religious Exemption. The relationship of a faith-based organization to another organization is not considered an affiliation with the other organization if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.

 

Waiver. The affiliation rules described above are waived for (1) any business concern with not more than 500 employees that, as of the date on which the loan is disbursed, is assigned a North American Industry Classification System code beginning with 72; (2) any business concern operating as a franchise that is assigned a franchise identifier code by the SBA; and (3) any business concern that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 681).

 

Does unemployment count as income when determining my maximum loan amount?

No. Your maximum loan amount is determined by average monthly payroll from 2019 or 2020. This would not include unemployment payments.

 

If you are an independent contractor or self-employed with no employees: You will use any 1099 (or similar) payments to determine this figure. Unemployment benefits would not be included. How to determine maximum loan amount as an independent contractor.

 

If you are a business with employees: You will use average monthly payroll for your business from 2019 or 2020. How to determine maximum loan amount as a business with employees.

Will I be approved for a PPP loan if my business is in bankruptcy?

No. If the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan. If the applicant or the owner of the applicant becomes the debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, it is the applicant’s obligation to notify the lender and request cancellation of the application. Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes.

Is a hedge fund or private equity firm eligible for a PPP loan?

No. Hedge funds and private equity firms are primarily engaged in investment or speculation, and such businesses are therefore ineligible to receive a PPP loan.

Do the SBA affiliation rules prohibit a portfolio company of a private equity fund from being eligible for a PPP loan?

Borrowers must apply the affiliation rules that appear in 13 CFR 121.301(f), as set forth in the Second PPP Interim Final Rule (85 FR 20817). The affiliation rules apply to private equity-owned businesses in the same manner as any other business subject to outside ownership or control.

Could I be ineligible even if I meet the eligibility requirements?

You are ineligible for a PPP loan if, for example:

 

  • You are engaged in any activity that is illegal under Federal, state, or local law;
  • You are a household employer (individuals who employ household employees such as nannies or housekeepers);
  • An owner of 20 percent or more of the equity of the applicant is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for, a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year;
  • You, or any business owned or controlled by you or any of your owners, has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government;
  • Your business or organization was not in operation on February 15, 2020;
  • You or your business received or will receive a grant under the Shuttered Venue Operator Grant program under section 324 of the Economic Aid Act;
  • The President, the Vice President, the head of an Executive Department, or a Member of Congress, or the spouse of such person as determined under applicable common law, directly or indirectly holds a controlling interest in your business;
  • Your business is an issuer, the securities of which are listed on an exchange registered as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) (SBA will not consider whether a news organization that is eligible under the conditions described in subsection 1.f. and 1.g.vi. is affiliated with an entity, which includes any entity that owns or controls such news organization, that is an issuer); or
  • Your business has permanently closed

To determine borrower eligibility under the 500-employee or other applicable threshold established by the CARES Act, must a borrower count all employees or only full-time equivalent employees?

For purposes of loan eligibility, the CARES Act defines the term employee to include “individuals employed on a full-time, part-time, or other basis.” A borrower must therefore calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees.

 

By contrast, for purposes of loan forgiveness, the CARES Act uses the standard of “fulltime equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.

Do businesses owned by large or private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

 

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

SBA regulations require approval by SBA’s Standards of Conduct Committee (SCC) for SBA Assistance, other than disaster assistance, to an entity, if its sole proprietor, partner, officer, director, or stockholder with a 10 percent or more interest is: a current SBA employee; a Member of Congress; an appointed official or employee of the legislative or judicial branch; a member or employee of an SBA Advisory Council or SCORE volunteer; or a household member of any of the preceding individuals. Do these entities need the approval of the SCC in order to be eligible for a PPP loan?

The SCC has authorized a blanket approval for PPP loans to such entities so that further action by the SCC is not necessary in the PPP program.

SBA regulations require a written statement of no objection by the pertinent Department or military service before it provides any SBA Assistance, other than disaster loans, to an entity, if its sole proprietor, partner, officer, director, or stockholder with a 10 percent or more interest, or if a household member of any of the preceding individuals, is an employee of another Government Department or Agency having a grade of at least GS-13 or its equivalent. Does this requirement apply to PPP loans?

No. The SCC has determined that a written statement of no objection is not required from another Government Department or Agency for PPP loans.

How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, 20 received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

 

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.

 

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

Section 1102 of the CARES Act provides that PPP loans are available only to applicants that were “in operation on February 15, 2020.” Is a business that was in operation on February 15, 2020 but had a change in ownership after February 15, 2020 eligible for a PPP loan?

Yes. As long as the business was in operation on February 15, 2020, if it meets the other eligibility criteria, the business is eligible to apply for a PPP loan regardless of the change in ownership. In addition, where there is a change in ownership effectuated through a purchase of substantially all assets of a business that was in operation on February 15, the business acquiring the assets will be eligible to apply for a PPP loan even if the change in ownership results in the assignment of a new tax ID number and even if the acquiring business was not in operation until after February 15, 2020. If the acquiring business has maintained the operations of the pre-sale business, the acquiring business may rely on the historic payroll costs and headcount of the pre-sale business for the purposes of its PPP application, except where the pre-sale business had applied for and received a PPP loan. The Administrator, in consultation with the Secretary, has determined that the requirement that a business “was in operation on February 15, 2020” should be applied based on the economic realities of the business’s operations.

Why are some PPP borrowers receiving a Loan Necessity Questionnaire (SBA Form 3509 or 3510)?

As previously announced, SBA is reviewing all loans of $2 million or more, and other loans as appropriate, for eligibility, fraud or abuse, and compliance with loan forgiveness requirements. As part of this process, SBA is providing a Loan Necessity Questionnaire to lenders for them to provide to PPP borrowers that, together with their affiliates, received loans of $2 million or more. Upon request from their lender, borrowers should return the completed questionnaire to their  ender within 10 business days of receipt.

 

The information that borrowers provide on the questionnaire will help SBA assess those borrowers’ certification in their loan application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” as required by the CARES Act.

 

A request to complete the Loan Necessity Questionnaire does not mean that SBA is challenging a borrower’s certification that is required by the CARES Act. SBA’s assessment of a borrower’s certification will be based on the totality of the borrower’s circumstances through a multi-factor analysis. As described in FAQ #46, SBA will assess whether the borrower had adequate basis for making the required good-faith certification, based on its individual circumstances in light of the language of the certification and SBA guidance. This certification is required to have been made in good faith at the time of the loan application, even if subsequent developments resulted in the loan no longer being necessary. In its review, SBA may take into account the borrower’s circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application. 

 

After a borrower submits its completed questionnaire, SBA may request additional information, if necessary, to complete its review. When additional information is requested, borrowers will have an opportunity to provide a narrative response to SBA explaining the circumstances that provided the basis for their good-faith loan necessity certification. SBA will make a final determination that a borrower lacked an adequate basis for its loan necessity certification after reviewing any additional information that a borrower chooses to submit. This targeted, multi-step approach will ensure the integrity of the evaluation process and expeditious processing, as well as properly allocate SBA’s finite resources to those loans that require additional review.

Are businesses that receive revenue from legal gaming eligible for a PPP Loan?

A business that is otherwise eligible for a PPP Loan is not rendered ineligible due to its receipt of legal gaming revenues, and 13 CFR 120.110(g) is inapplicable to PPP loans.

Are businesses that are generally ineligible for loans under 13 CFR 120.110 eligible for a PPP loan?

Paragraphs (a), (g), and (k), of 13 CFR 120.110 do not apply to PPP loans. For PPP loans, the ineligibility restriction in 13 CFR 120.110(n) is superseded by subsection B.2.a.iii. of this interim final rule. Otherwise, a business is not eligible for a PPP loan if it is a type of business concern (or would be, if the entity were a business concern) described in 13 CFR 120.110, except as permitted by subsections B.1.d and B.1.g of this rule or otherwise permitted by PPP rules. Businesses that are not generally eligible for a 7(a) loan under 13 CFR 120.110 are described further in SBA’s Standard Operating Procedure (SOP) 50 10 6, Part 2, Section A, Chapter 3.

The affiliation rule based on ownership states that SBA will deem a minority shareholder in a business to control the business if the shareholder has the right to prevent a quorum or otherwise block action by the board of directors or shareholders. If a minority shareholder irrevocably gives up those rights, is it still considered to be an affiliate of the business?

No. If a minority shareholder in a business irrevocably waives or relinquishes any existing rights, the minority shareholder would no longer be an affiliate of the business (assuming no other relationship that triggers the affiliation rules).

How does the 500-employee limit for First Draw PPP Loans and the 300- employee limit for Second Draw PPP Loans apply to a public broadcasting station if a college or university operates or holds the license for the station and the station is not a separate legal entity?

Subsection B.1.g.vi of the consolidated interim final rule implementing updates to the PPP, 86 FR 3692 (Jan. 14, 2021), and subsection c.4 of the interim final rule for Second Draw PPP Loans, 86 FR 3712 (Jan. 14. 2021), apply the 500- and 300-employee limits, respectively, based on the number of employees “per location” of the public broadcasting station. This limit on the number of employees per location applies to the public broadcasting station itself and does not include other employees of a college or university that operates or holds the license for the station.