SBA Confirms Paycheck Protection Loan Eligibility for Nonprofit Hospitals

The AHA had asked for the guidance after noting that it wasn't clear if the PPP loans were available for public hospitals.

The Small Business Administration has made clear that some public hospitals are eligible for Paycheck Protection Program loans of up to $10 million.

Under guidance issued this week, the SBA said that: "Section 1102 of the CARES Act defines the term 'nonprofit organization' as 'an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a) of such Code.'"

PPP makes loans of up to $10 million for organizations with fewer than 500 employees or that meet other criteria. The terms of the loan provide that up to 75% of the debt may be forgiven if the money is used for payroll costs.

The American Hospital Association had asked for the guidance on April 8 after noting that "it is not clear whether public hospitals, including those that also are described under Section 501(c)(3) and exempt under Section 501(a), will be considered businesses owned by municipalities or other political subdivisions that are ineligible for loans under the 7(a) business loan program, specifically 13 C.F.R. § 120.110(j)."

"Section 1102 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act specifically makes loans under the PPP available to nonprofit organizations," Ashley Thompson, AHA's senior vice president, Public Policy Analysis & Development, said in the letter to SBA Administrator Jovita Carranza.  

"The statutory language should override any limitations that existed prior to the enactment of the CARES Act so that any nonprofit organization described in section 501(c)(3), including a public hospital, may qualify for a loan under the PPP," Thompson said.

In response, SBA said this week that the Trump Administration and the Treasury Department "understand that nonprofit hospitals exempt from taxation under section 115 of the Internal Revenue Code are unique in that many such hospitals may meet the description set forth in section 501(c)(3) of the Internal Revenue Code to qualify for tax exemption under section 501(a), but have not sought to be recognized by the IRS as such because they are otherwise fully tax-exempt under a different provision of the Internal Revenue Code."

The SBA said nonprofit, tax-exempt hospitals will meet the federal tax code's Section 115 definition of a "nonprofit organization" under section 1102 of the CARES Act "if the hospital reasonably determines, in a written record maintained by the hospital, that it is an organization described in section 501(c)(3) of the Internal Revenue Code and is therefore within a category of organization that is exempt from taxation under section 501(a)."

"The hospital's certification of eligibility on the Borrower Application Form cannot be made without this determination," SBA said.