Are Coops and Condo Eligible for the PPP Loan?

Some banks have now said that they will not even process PPP Loan Program applications from condos and co-ops due to ineligibility per the amended qualifications of the program.

Therefore, unless the law is amended or the SBA changes its terms for eligibility, condos and co-op boards should not expect their buildings to qualify for the PPP Loan Program.

Yes, though we strongly advise against doing so until there is more clarity from the SBA or Congress.

Based on the Interim Final Rules and the new application form the SBA released on April 2, 2020, there is a conflict between what the SBA says and what the CARES Act says.

For example, the SBA states in the Interim Final Rules that in order to be eligible for a PPP loan, the applicant must be “a small business concern as defined in section 3 of the Small Business Act (15 USC 632), and subject to SBA’s affiliation rules under 13 CFR 121.301(f) unless specifically waived in the Act.”

Meanwhile, the CARES Act itself states that “in addition to small business concerns, any business concern … shall be eligible …”

If you dig deeper, the SBA discusses ineligible borrowers in the SBA’s Standard Operating Procedure 50 10, Subpart B, Chapter 2. On page 105 the SBA states that “apartment buildings and mobile home parks are not eligible.”

Is the SBA going too far against the intent of the CARES Act?

Several prominent law firms that have said that co-op and condo boards who are comfortable executing the application and related certification can do so if they wish, after consulting individual counsel and the building’s accountant.

Their argument is that the new SBA rules go too far and contradict the CARES Act, which expressly seeks to expand eligibility beyond traditional SBA eligibility requirements.

What are the consequences of applying anyway?

Board members will have to sign the loan application, and the new loan application requires the signer to certify that:

“The Applicant is eligible to receive a loan under the rules in effect at the time this application is submitted that have been issued by the Small Business Administration (SBA) implementing the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (the Paycheck Protection Program Rule).”

As a result, any board member who signs the application could be subjected to criminal penalties for false certification of a federal loan application, and would not be protected under a typical directors and officers liability insurance policy.

Once again, remember that a false certification can lead to punishment under criminal law, and that directors and officers insurance does not indemnify you from criminal actions.

Whether you are a landlord, management company or a board member of a condo or co-op building, we advise extreme caution until this is clarified or the law is revised.