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Co-ops now eligible for forgivable PPP loans

Under the original Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in April 2020, Congress created the Paycheck Protection Program (PPP) to help small businesses retain employees and remain in operation.

Unfortunately, the CARES Act did not provide any assistance to co-ops, which depend solely on maintenance (rent) payments from their shareholders to fund ongoing operations of the corporation.

This was problematic given the risk and uncertainty of a significant number of shareholders going into maintenance arrears due to the Covid-19 pandemic (due to loss of jobs, illness, etc.) and the inability of co-ops to be able to timely exercise any of their usual remedies for nonpayment of maintenance.

That changed as of December 21, 2020, when Section 7(a)(36)(A) of the Small Business Act (15 USC 636(a)(36)(A)) was amended by Section 315 of the Consolidated Appropriations Act, 2021 (CAA) and the “Economic Aid to Hard-Hit Businesses, Nonprofits, and Venues Act” to include cooperative housing corporations with 300 or fewer employees.

The CAA introduced an additional $284 billion into the PPP pool, and amended certain aspects of the PPP.  The CAA is silent as to whether or not condominiums and HOAs are included in this new round of PPP loans available to co-ops.

The major provisions of the new round of PPP loans applicable to co-ops under the CAA include:

  • The co-op must have 300 or fewer employees.
  • The co-op must have been in operation on February 15, 2020.
  • Approved co-ops are eligible to receive a maximum loan of $2 million or up to 2.5 times their monthly payroll expenses, whichever is less.
  • To qualify for loan forgiveness, 60% of the proceeds must be used for payroll and the remaining 40% may be used for other eligible expenses such as utilities, rent and mortgage payments.
  • No collateral is required, nor are there any fees associated with the loan, which is up to 100% forgivable (provided that program rules are followed and all funds are used accordingly).
  • No personal guaranties are required.
  • The CAA specifies that expenses paid with PPP loans are now tax-deductible.
  • The CAA extends the availability of PPP loans through March 31, 2021 (subject to the availability of funds).

The Small Business Administration is due to issue new regulations in the coming days which will provide additional details and further clarification.

Co-ops should contact their lenders right away to discuss the PPP loan as the loans are only available on a first come, first served basis, and it is likely that demand will be high.

Rachel Sigmund McGinley is chair of the Cooperative & Condominium Representation Group with Adam Leitman Bailey, PC.


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