Here’s how real estate companies qualify as “small” businesses for PPP loans

As the government pumps another $310 billion into its latest paycheck-backstop program, critics are pointing the finger at some large companies that have received loans designed to help keep small businesses afloat.

Big firms like Dallas-based hotelier Ashford Inc. and the Ruth’s Chris Steak House restaurant chain and others availed themselves of millions of dollars through the Paycheck Protection Program, which was laid out to help small companies with 500 employees or fewer survive the coronavirus closures.

Large companies were eligible for the loans based on size standards the U.S. Small Business Administration set up in 2016, classifying what counts as a small business for different industries.

But for most real estate companies, the measurement isn’t one of employee headcount but instead a matter of gross revenues.

The SBA sets a limit of $8 million in annual receipts, for example, for real estate agent and broker offices, mortgage brokers and appraisers’ offices to qualify as small businesses.

By point of comparison, Douglas Elliman — which did not seek PPP money — saw revenues of $784 million last year.

Real estate companies received about $10.7 billion in loans approved through the federal program, or about 3 percent of the $342 billion allocated through the first round. Nearly 80,000 real estate companies received loans for an average of about $134,000 each.

But as controversy swirled over large companies gobbling up the funds, the SBA has promised tougher enforcement in its latest funding round.

In a White House briefing last week, Treasury Secretary Steven Mnuchin said the “intent of this money was not for big public companies that have access to capital.”

But the existing standards the government sets vary widely.

Companies that lease residential buildings or non-residential buildings like offices can qualify as small businesses with as much as $30 million in annual receipts. And companies in the construction business — including single- and multi-family builders, residential remodelers and commercial builders — have a limit of $39.5 million in annual receipts.

Real estate credit firms have a limit of $41.5 million, which is among the highest levels set out by the SBA.

The agency last week announced a safe harbor period by which companies can return loans until May 7, and said it will audit borrowers to make sure they meet requirements for size eligibility and necessity, and to make sure the loans are being used for approved expenses. Already, Ruth’s Chris — $20 million — and Shake Shack and Potbelly restaurants — $10 million each — said they would return their funding after receiving withering criticism.

Mnuchin last week said: “We’re going to put up very clear guidance so that people understand what the certification is, what it means if you’re a big company.” He added, “to the extent these companies didn’t understand this and they repay loans, that will be OK, and if not there will be potentially other consequences.”

Contact Rich Bockmann at rb@therealdeal.com or 908-415-5229