Nonprofit Lenders Eligibility for PPP Loan Forgiveness

During COVID-19 the Small Business Administration ("SBA") created a loan program known as the Paycheck Protection Program ("PPP"). These loans are issued by private lenders and credit unions and backed by the SBA. The basic purpose of the PPP is to incentivize small businesses to keep workers on payroll and/or to rehire laid-off workers that lost wages due to COVID-19 disruptions. In turn, if the borrower used the funds for eligible purposes during the required time period, the loan would be forgiven. However, a recent review of the SBA’s PPP records shows that 501(c)(3) nonprofit lenders were confused as to their eligibility and forgiveness of the PPP.

On May 5, 2022, the SBA clarified and confirmed that 501(c)(3) nonprofit lenders are eligible for PPP loan forgiveness, provided such nonprofit lenders have complied with the PPP's rules.

Pursuant to 13 C.F.R 120.110(b), non-profit businesses and other financial businesses that are “primarily engaged in the business of lending” are ineligible for SBA business loans. While the CARES Act specifically allowed nonprofit organizations to be eligible for PPP loans, it did not mention financial businesses/lenders, which SBA interpreted as “allowing nonprofits to overcome the 13 CFR 120.110 restriction, but not lenders.” This confusion allowed the SBA administrator to exercise broad discretion “to decline to enforce the Forgiveness and Loan Review IFR rule providing for denial of forgiveness to ineligible borrowers for 501(c)(3) nonprofit lenders.” The use of this broad discretion will allow 501(c)(3) lenders to be eligible for forgiveness.

FAQs for the Paycheck Protection Program can be found here: FAQ for PPP Borrowers and Lenders (sba.gov)