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Construction Companies Eligible For Cash Under CARES Act, But Homebuilders Still In Limbo

Construction firms with a headcount of 500 or fewer may be eligible to apply for Paycheck Protection Program loans under the CARES Act, according to new guidance from the U.S. Department of the Treasury.

U.S. Treasury Secretary Steve Mnuchin discusses the opportunity zone program during a press conference at the White House.

The Treasury Department released new guidance late Monday that clarified which businesses would be eligible for the PPP loans, which are forgiveable and can cover up to $10M for payroll, rent, taxes and other critical business expenses.

A business is eligible for a PPP loan if it has fewer than 500 employees or if the business meets the Small Business Administration's employee-based size standards for the industry in which it operates, a sticking point that had prevented construction firms with smaller headcounts to qualify for the PPP loans.

Following the signing of the CARES Act into law on March 27, the SBA issued an interim final rule April 2, with language that suggested that small construction companies wouldn't be eligible for PPP loans. 

“Administration officials have done the right thing and revised their guidance to allow, as Congress intended, for firms that employ 500 or fewer people to qualify for the Paycheck Protection Program loans,” Associated General Contractors of America CEO Stephen Sandherr said in a statement Tuesday.  

However, the AGC noted that “the department’s fix is, at best, procedurally sloppy.” 

The association said it plans to work with Trump administration officials to ensure the SBA’s regulations and guidance are harmonized with the new Treasury Department guidance.

Still unresolved as of Tuesday is whether homebuilders are eligible for PPP loans. The April 2 interim guidelines on the program referenced existing SBA guidelines on who can apply for loans through that agency.

Those existing guidelines exclude homebuilders, National Association of Home Builders Housing Finance and Regulatory Affairs head David Ledford said.

"The SBA lists firms that are ineligible for loans, but applying those provisions to the new program doesn't make sense, because the Paycheck Protection Provision doesn't have anything to do with building anything or developing land," Ledford said. "Our hope is that wasn't the intention of CARES Act."

A construction worker building a new home in Seattle.

Various businesses and organizations don't qualify for standard SBA loans, but the language that concerns residential developers says that "speculative" enterprises don't qualify. Such speculative enterprises include wildcatting in oil; dealing in stocks, bonds or commodity futures; mining gold or silver; and "building homes for future sale," the guidelines say.

Also, passive businesses owned by developers and landlords who don't use or occupy the assets aren't generally eligible for SBA loans. 

Saturday, NAHB sent a letter to the Treasury Department and the SBA expressing its concerns.

"Excluding the nation’s homebuilders, developers and apartment owners from this vital source of capital during the COVID-19 pandemic will have dire consequences at this critical juncture for the American housing economy," the letter read.

The letter further asked Treasury and the SBA to provide a waiver of the existing rules for homebuilders, land developers and multifamily property, and make it clear that the residential housing industry can access financing through the PPP.

"We're optimistic that Treasury will clarify that in the near future," Ledford said. "A number of our members have applied for the program, and have been accepted by their banks, but none of them have been funded yet, so we're still waiting."

The SBA clarification on Monday, Ledford said, was general guidance.

"There's still nothing specific to homebuilders," he said.

Under typical SBA rules, construction companies are assessed on their average annual income as to whether they qualify as a small business, not their headcount. This means that construction companies with relatively few staff could be exempt from receiving a PPP loan.

Prior to the Treasury’s clarification, many construction firms were holding off applying for the program until they received further clarity on the interim final rule, according to the AGC.

"If they receive the money but it was contrary to what was written in the rule, they could be open to some liability,” AGC Director of Tax, Fiscal Affairs and Accounting Matt Turkstra said.