SBA clarifies nonprofit hospitals are eligible for PPP loans

The U.S. Small Business Administration (SBA) recently provided clarification for how nonprofit hospitals can qualify for Paycheck Protection Program (PPP) loans

The low-interest, forgivable loans are meant to be a lifeline for small businesses and nonprofits during the COVID-19 pandemic, helping them to keep their employees.

In an interim final rule published on April 28, the SBA said: “A hospital that is otherwise eligible to receive a PPP loan as a business concern or nonprofit organization (described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code) shall not be rendered ineligible for a PPP loan due to ownership by a state or local government if the hospital receives less than 50 percent of its funding from state or local government sources, exclusive of Medicaid.”

The SBA further said a nonprofit hospital could qualify for PPP money if it “reasonably determines” and provides written documentation that it qualifies as a 501(c)(3) under the Internal Revenue Code “and is therefore within a category of organization that is exempt from taxation under section 501(a).” 

The SBA said its approach to handling hospitals’ eligibility for the program “helps accomplish the statutory purpose of ensuring that a broad range of borrowers, including entities that are helping to lead the medical response to the ongoing pandemic, can benefit from the loans provided under the PPP.”

Congress provided $349 billion in round one of the PPP and another $310 billion for round two.

The SBA will forgive loans if the recipients keep all employees on the payroll for eight weeks and use 75 percent of the money for payroll, with 25 percent going for other approved expenses like interest on mortgages, rent, and utilities.

The agency also clarified on May 3 that a borrower’s PPP loan forgiveness amount would not be reduced if it laid off an employee, offered to rehire the same worker, but the employee declined the offer. The borrower must have made a “good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower,” the SBA said in updated FAQ guidance on the program.