The Coronavirus Aid, Relief and Economic Security Act (CARES Act) extends eligibility for Paycheck Protection Program (PPP) loans to certain businesses with 500 or fewer employees, among others. On April 2, 2020, the Small Business Administration (SBA) issued an Interim Final Rule confirming that the SBA’s affiliation rules apply to PPP loan applications.
The SBA's affiliation rules generally require a company to count its own employees, plus the employees of its foreign and domestic affiliates to determine whether the entity qualifies for a PPP loan. However, the SBA seemed to deviate from its traditional affiliation rules when it published its Interim Final Rule and its April 6, 2020, Frequently Asked Questions (FAQ), which stated that a business is eligible for a PPP loan if the business has "500 or fewer employees whose principal place of residence is in the United States" [emphasis added]. Under this language, the SBA appeared to permit businesses to ignore all foreign-resident employees of the business, and the business's foreign and domestic affiliates, for purposes of the PPP's 500 or fewer employee size standard.
However, on May 5, 2020, the SBA published FAQ #44, which appears to reverse the SBA's position on that issue. FAQ #44 states, in pertinent part:
"For purposes of the PPP's 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rules" [emphasis added].
While this determination is consistent with the SBA’s traditional application of its affiliation rules, it appears to contradict the SBA's previously released PPP guidance and rules.
Businesses that applied for and received PPP loans before May 5, 2020, in reliance on previous SBA rules and guidance may not be affected by FAQ #44. SBA FAQ #17, published on April 6, 2020, states, in pertinent part:
"Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs."
The affiliation rules are complicated and specific to the SBA. If you have concerns about the affiliation rules or specifically how this issued guidance affects your business's size determination, please contact Ford Turrell, Timothy Hillegonds, Rob Davies, Matthew Crowe or your Warner attorney.
