Does My Business Qualify for a PPP Loan?

Intended to primarily benefit small businesses, exceptions allowed much bigger businesses--including publicly traded companies--to obtain loans and deplete limited PPP funds.



The Small Business Administration's (SBA) Payroll Protection Program (PPP) was created to help small businesses negatively impacted by the COVID-19 pandemic. While intended to primarily benefit businesses with 500 or fewer employees, there are exceptions for affiliated businesses and franchises that have allowed much bigger businesses--including publicly traded companies--to obtain loans and deplete limited PPP funds. The SBA has new guidance to try to ensure the PPP funds end up in the hands of small businesses instead of bigger companies with other liquidity and capital market options.

Who Qualifies for a Paycheck Protection Program (PPP) Loan?

PPP loans were intended to benefit small businesses needing immediate cash to help with payroll and other operational expenses in the wake of the COVID-19 crisis. The following types of businesses that were in operation on February 15, 2020 are eligible to apply for a PPP loan:

  • any business with 500 or fewer employees whose principal place of residence is in the United States
  • sole proprietors, independent contractors, or self-employed persons, and
  • 501(c)(3) non-profits, 501(c)(19) veterans’ organizations, and SBA-designated tribal business concerns with 500 or fewer employees whose principal place of residence is in the United States.

In addition, businesses with more than 500 employees can qualify for a PPP loan if they meet either one of the SBA “small business concern” size standards. Specifically, this requires that the business fall within:

  • the SBA’s “small business concern” size standard for number of employees for the industry in which it operates (see www.sba.gov/size for industry size standards), or
  • the SBA’s alternative “small business concern” size standard with: (1) a tangible net worth not in excess of $15 million as of March 27, 2020, and (2) an average net income of $5 million or less after federal income taxes (excluding carry-over losses) for the two full fiscal years before the date of the application.

To determine how many employees your business has for purposes of obtaining a PPP loan, you can use the average number of employees for each pay period during the previous 12 months or from calendar year 2019, or the average number of employees for each pay period that the business has been operational, if less than 12 months. When counting number of employees, you count full-time and part-time employees the same.

Affiliate Rules for Determining Number of Employees

When figuring out how many employees you have for purposes of obtaining a PPP loan, you must include in your employee count all of the employees of any business that you are affiliated with. The SBA deems entities to be affiliated when one business controls or has the power to control the other, or when a third party controls or has the power to control both. It doesn’t matter whether control is exercised as long as the power to control exists. This type of control can arise through ownership (including control of over 50 percent of voting stock or stock options, convertible securities, and agreements to merge), common or overlapping management between companies, or identity of interest between individuals or businesses, including family members.

Exemptions from the Affiliate Rules

There are some important exceptions to the affiliation rules which allow certain companies that would otherwise be ineligible because of their size to apply for PPP loans. Under SBA rules, the following businesses do not have to include affiliate employees in their total employee count when determining whether they meet the 500 or fewer employee requirement for PPP loan eligibility:

  • any business operating as a franchise that has an SBA-franchise identifier code
  • any business whose primary NAICS code starts with 72 (accommodations and food service) with 500 or fewer employees per location
  • any business that has received financial support from a Small Business Investment Company (SBIC), and
  • certain faith-based organizations if the affiliation is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.

These exemptions from the affiliate rules resulted in a lot controversy after the first two rounds of PPP funding. Large hotels, restaurant chains, and other franchises--including many publicly traded companies--were able to obtain PPP loans under this exception. In the meantime, many small businesses had more difficulty getting their loans processed quickly. For many of them, by the time they did, there were no PPP funds left.

The Loan "Necessity" Certification

While technically eligible under the initial PPP rules and guidance, the bigger companies and franchises that were able to obtain PPP funds were criticized for violating the spirit of the PPP loan program, which was intended for small businesses with few or no other options for loans or capital. The SBA has since updated it guidance on the “necessity" certification that borrowers must make to obtain a loan.

The new guidelines clarify that companies with access to other sources of liquidity and large public companies with substantial market value would not be able to show the required "necessity." The Treasury Department has also said that the government will perform a full audit on all companies that receive more than $2 million in PPP loans and that borrowers will face criminal liability for false certifications in their loan application.

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