(RNS) — A dispute with the federal government over how to count employees, mixed with some bad timing, could cost a small evangelical Christian college more than $7 million.
Gordon College, founded north of Boston in 1889, is suing the Small Business Administration after the agency denied a request to forgive a loan made under the Payroll Protection Plan, which was aimed at preserving jobs during pandemic shutdowns. While millions of PPP loans have been forgiven, some employers, like Gordon, have run afoul of SBA rules and found themselves with debt they did not expect to repay.
“We had every reason to expect the loan forgiveness portion of the program would be fulfilled when applicable,” school officials said in a statement to RNS.
Gordon’s lawsuit reveals some of the confusion that accompanied the PPP program, which was hastily passed in the early days of the pandemic in 2020, and began distributing money before the rules governing those loans were finalized. More than 11.5 million loans, amounting to some $793 billion, were made under the program.
In mid-April 2020, according to documents filed in a federal lawsuit, Gordon applied for a PPP loan. According to the program’s rules at the time, Gordon alleges, if the school kept paying its employees during the term of the loan, and didn’t lay them off, the loan would be forgiven. There was one catch: the loan program limited its benefit to organizations with fewer than 500 employees.
Gordon had more than 500 employees at the time, but that number included student workers and part-time staff. After talking with their legal counsel, Gordon decided to count employees using a “full-time-equivalent,” or F.T.E, model of counting, common in academic settings, and submitted a loan application.
Under that model, Gordon had 495.67 employees.
The school’s loan application, submitted on April 15, 2020, was approved a few days later, according to court documents, and by April 23, the school had the funds in hand.
Three days later, the SBA clarified how to count employees, telling them to use a head count approach.
“For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees,” the SBA advised.
When Gordon applied to have its loan forgiven in 2022, the SBA turned them down, citing that new guidance. Gordon countered by saying the headcount rule was published after their loan was approved and should not apply. “SBA has determined that the borrower was ineligible for the PPP loan,” the SBA said in a letter dated April 12, 2022.
Gordon, in its statement, said it had “spent the entire amount on its employee payroll expenses to keep faculty and staff employed and avoid extensive short-term furloughs or layoffs.”
