SBA, Treasury Clarify Treatment Of Foreign Affiliates Under PPP Eligibility Criteria
Wednesday, May 6, 2020

In our post on April 4, we advised there was an ambiguity between the CARES Act and subsequent guidance issued by the Small Business Administration (SBA) on whether employees of foreign affiliates of applicants are considered when determining eligibility for Paycheck Protection Program (PPP) loans.

Applicants in the SBA’s Business Loan Programs (which includes the PPP) are generally subject to the affiliation rule under 13 CFR Section 121.301, subject to certain statutory waivers.  These rules provide that in determining a concern’s size (and therefore its loan eligibility), the SBA counts the employees of both the concern whose size is at issue and all of its domestic and foreign affiliates.

However, in an Interim Final Rule, the SBA has indicated that an entity generally is eligible for the PPP if it, combined with its affiliates, has 500 or fewer employees whose principal place of residence is in the United States.

In the latest update of its PPP Frequently Asked Questions (FAQ’s), issued May 5, 2020, the SBA clarified this ambiguity by unequivocally stating that “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” and that “[b]usiness concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. 632) on the basis of the employee-based size standard must do the same.”

Any business concern that obtained a PPP loan by excluding the employees of its foreign affiliates may now want to revisit their applications (and the eligibility certifications they made) in light of the anticipated (and well-publicized) scrutiny of PPP loans.

 

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