Cooperatives Eligible for Funding Under SECURE Act

COVID-19 Business Update

Under the SECURE Act, cooperative housing corporations (but not condominium associations) may be eligible to receive forgivable loans.

In order to be eligible, a cooperative:

  • Must certify that it has experienced “current economic uncertainty” due to the pandemic; and
  • Cannot have more than 300 employees.

Forgivable loans will be made to eligible cooperatives in an amount not to exceed 2.5 times its monthly payroll expense (with a $2,000,000 cap) and will be forgiven to the extent that borrowed funds are used for eligible expenses, and at least 60% of those expenses are payroll expenses.

The statute does not provide a definition of the term “economic uncertainty,” but SBA regulations create a presumption in favor of the borrower for loans under $2,000,000. The new legislation also provides a mechanism for entities that had previously received PPP funds to qualify for a “Second Draw Loan.” To qualify for a “Second Draw Loan” an entity must certify that it has experienced a reduction in income (gross receipts) in excess of 25% from any fiscal quarter of the prior year. While a 25% reduction is not the test for a cooperative to qualify for an initial funding pursuant to the program, having some revenue loss will be helpful in certifying as to the existence of economic uncertainty.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.