PPP Loan Eligibility for Higher Education
The Paycheck Protection Program (PPP) loan rules continue to develop. On April 2, 2020, the U.S. Small Business Administration (SBA) posted an interim final rule implementing the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act temporarily added the new PPP to the SBA 7(a) Loan Program.
One of the popular features of this new loan program is the forgiveness feature. The PPP was intended to provide economic relief to small business enterprises nationwide due to the economic distress caused by the SARS-CoV-2 virus and the incidence of COVID-19. While nonprofit organizations weren’t eligible to participate in the SBA 7(a) Loan Program, the CARES Act expanded eligibility to include certain nonprofit and other organizations. Eligibility for nonprofit organizations (including private colleges) was limited to the PPP Loan Program.
In addition to the initial interim final rule, the SBA posted five additional interim final rules between April 3 and April 30, 2020. The U.S. Department of the Treasury (Treasury) also posted an additional interim final rule on April 28, 2020.
This rule from Treasury addresses several issues caused by adding certain nonprofit organizations to the SBA 7(a) Loan Program that was otherwise not available to them. These changes include guidance to help bridge the SBA’s normal regulations and other laws applicable to nonprofits in the areas of:
- Religious employer hiring
- Federal Work-Study
Treasury pointed out in the Federal Register the normal SBA rules on nondiscrimination and hiring would, for purposes of the temporary PPP, incorporate the limitations and exemptions in corresponding federal statutes and regulations to allow, for instance, organizations to make decisions with respect to the nonprofit organization membership and the employment of individuals of a particular religion to perform work connected with carrying on the organization’s nonprofit activities and mission.
The final provision primarily affecting higher education was to explain that while student workers generally count as employees for determining the entity’s size, higher education institutions must exclude work-study students when determining the number of employees for PPP loan eligibility and also must exclude payroll cost for work-study students from the calculation of payroll costs used to determine their PPP loan amount. This was done because the Federal Work-Study Program is subsidized financial aid rather than traditional employment. This means that student workers not under the Federal Work-Study Program would be counted. Treasury commented further that this would assist small colleges where the part-time work-study headcount dwarfs their full-time faculty and staff headcounts. These small colleges are normally known as work colleges. There are nine of those nationwide.
While this helped work colleges specifically, BKD believes there may be numerous other small colleges with robust work-study programs that may have been close to the 500-employee threshold. They would have counted work-study students because prior guidance stipulated that students (even if part time) should be counted. If a college determined eligibility and wasn’t able to qualify because of employment headcount, it’s appropriate to recount based on this new guidance that excludes Federal Work-Study Program students as employees to redetermine eligibility.
As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication. If you have questions or want more information, please reach out to your BKD Trusted Advisor™ or use the Contact Us form below.