A major construction contractors’ group says that a new U.S. Small Business Administration regulation for implementing a crucial loan program created by the Coronavirus Aid, Relief and Economic Security, or CARES, Act conflicts with the text of the statute and could hamper many construction firms hit by the coronavirus' economic blow from applying for the loans.
At issue is SBA's recently issued interim final rule for carrying out the CARES Act’s Paycheck Protection Program (PPP). The law provides $349 billion in loans for small businesses or other entities, such as nonprofit organizations.
What’s most attractive about the loans is that if a company uses most of the proceeds for payroll, health insurance premiums, and certain other specified purposes, the government will forgive the loan—essentially turning it into a grant. Borrowers must use at least 75% of the loan dollars for payroll only.
The CARES Act states that a key criterion for being eligible for the PPP loans is that a company can have up to 500 employees.
But the Associated General Contractors of America says that, contrary to the CARES Act's language, SBA’s guidance adds another loan-eligibility requirement for construction companies.
The agency says that if a potential loan applicant is in an industry that has an SBA revenue standard for qualifying for loans or other assistance from the agency, that company must meet that revenue standard in addition to the 500-employee ceiling.
Construction is one of the industries that has such a standard, which is based on average annual receipts or revenue. The so-called size standards long pre-date the CARES Act.
Stephen Sandherr, AGC’s chief executive officer, said in a statement, “Unfortunately, the Small Business Administration is needlessly delaying the loan applications of thousands of construction firms that clearly would meet the statutory threshold of 500 employees or less because the agency appears to have added a secondary qualification that is not part of the statute.”
Matthew Turkstra, AGC director of tax, fiscal affairs and accounting, said in an April 7 interview that what is needed to address the problem is “something official” from the SBA, either new formal guidance concerning the Paycheck Protection Program or a revised interim final rule.
SBA didn't immediately reply to an ENR request for comments.
Construction Size Standards
The SBA size limits for what's considered a "small" construction company varies somewhat, according to the type of construction they perform.
On the upper end of the range are firms that perform highway, street and bridge construction and other heavy and civil construction, which must meet a standard of $39.5 million or less in average annual revenue.
For dredging and surface-cleanup firms and land-subdivision firms, the standard is $30 million.
For many types of specialty contractors, such as structural steel/precast concrete, masonry, glass and glazing, electrical, plumbing/HVAC and roofing—the limit is $16.5 million.
For engineering services, the scale tops out at $16.5 million; for architectural services, it is $8 million.
In an April 4 letter to SBA Administrator Jovita Carranza, James Christianson, AGC vice president for government relations, noted that the PPP guidance issued by the Treasury Dept. is different from SBA’s and says that the only eligibility criterion for a PPP loan is having 500 or fewer employees.
Christianson also said that the SBA interim final rule “is causing significant confusion within the construction industry, as it contradicts statute and U.S. Dept. of Treasury guidance."
Loan Commitments Already
Turkstra said that, so far, construction firms are holding off on applying for PPP loans until the questions about eligibility are clarified.
The clock is ticking, however. Larry Kudlow, director of the White House National Economic Council, said in a television interview on April 6 that as of 9:30 that morning, there were “commitments” for $38 billion in loans.
That represents more than 10% of the total available. SBA formally launched the PPP on April 3.
Christianson said, “During these uncertain times where many construction projects are facing delays and shutdowns, construction contractors are being forced to make difficult and immediate decisions about the future of their workforces.”
He added, “As such, there is no time for confusion. The businesses and jobs of millions are at stake.”