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Paycheck Protection Program: Clarification on the 500 Employee Eligibility Limitation

April 09, 2020

Do you have lingering questions on the Paycheck Protection Program, maybe about how stringent the 500 employee limitation is? We clarify here.

As part of the Treasury and SBA’s ongoing efforts to clarify the provisions of the Paycheck Protection Program (PPP) they have released an FAQ document. In a recent update to this FAQ document, two FAQs were issued that significantly affects the eligibility for potential applicants who may have been deemed ineligible to participate in the PPP as they had either more than 500 employees or less than 500 employees but did not qualify due to exceeding certain revenue thresholds. This revenue limiting eligibility factor was listed as a requirement to participate in the PPP as noted in the SBA’s Interim Final Rule released on April, 2, 2020.

Directly from the SBA FAQ:

Question: Are small business concerns (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) required to have 500 or fewer employees to be eligible borrowers in the PPP?

Answer: No. Small business concerns can be eligible borrowers even if they have more than 500 employees, as long as they satisfy the existing statutory and regulatory definition of a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry. Go to www.sba.gov/size for the industry size standards.

Additionally, a business can qualify for the Paycheck Protection Program as a small business concern if it met both tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible 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.

A business that qualifies as a small business concern under section 3 of the Small Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the Borrower Application Form, unless otherwise ineligible.

Question: Does my business have to qualify as a small business concern (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) in order to participate in the PPP?

Answer: No. In addition to small business concerns, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standards for the industry in which it operates (if applicable). Similarly, PPP loans are also available for qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of the Small Business Act that have 500 or fewer employees whose principal place of residence is in the United States, or meet the SBA employee-based size standards for the industry in which they operate.

What does this mean?

When looking at the two FAQs noted above, generally speaking, a small business or nonprofit can qualify for the PPP in one of three ways –

  • employing less than 500 employees whose principal place of residence is in the United States

or for business and nonprofit organizations with more than 500 employees either:

  • meet the SBA employee based or revenue-based size standards for its primary industry (click here for link).
  • Meet the SBA’s alternative size standard

Please note, that although SBA guidance above allows more small business and nonprofit organizations to participate in the PPP, those businesses operating in the marijuana, gambling, insurance and certain other industries remain ineligible. If an entity was ruled ineligible when the PPP was initially implemented due to the industry it operates in, it will still be ineligible even if it meets one of the criteria above.

Impact on Non Profit Organizations

By only having to meet one of three potential qualifying factors noted above, nonprofit organizations who have over 500 employees may qualify for PPP if their revenues do not exceed the SBA revenue limitations as set forth here or meet the SBA’s alternative size standard.

Impact on Construction and Engineering Firms

Initially, many construction and engineering firms whose revenues exceeded the SBA’s limit on their industry, but employed less than 500 employees did not qualify for PPP loans. Based upon this FAQ, those firms would now qualify solely based on the fact that they have less than 500 employees or meet the SBA’s alternative size standard.

Navigating through all of the information and programs available to impacted businesses may be overwhelming. KLR advisors are available to assist you navigate the best path forward during this unprecedented crisis. With a completely remote workforce our advisors are always available.

Visit our Coronavirus Resource Center for more information.

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