COVID-19: SBA Clarifies Affiliation Rules for Paycheck Protection Program


On Thursday, April 2, 2020, the U.S. Small Business Administration (SBA) issued its Interim Final Rule to the Paycheck Protection Program (PPP). The final rules provide, in part, that entities eligible to apply for PPP loans will be subject to the SBA’s existing rules on entity affiliation. This left many entities with affiliate relationships (most notably private equity firms and venture capital firms) concerned and unclear on whether they would be excluded from qualifying for PPP loans. On Friday, April 3, 2020, the SBA issued a supplemental Interim Final Rule and a supporting guidance document to provide clarity on how the affiliation rules will apply to businesses generally, and how the affiliation rules will apply to faith-based organizations.

The new guidance maintains that, in most cases, borrowers will be considered together with their affiliates for purposes of determining eligibility for PPP loans. This will include small businesses not defined in the Small Business Act that have 500 or fewer employees whose principal place of residence is in the United States, nonprofit organizations, and veterans organizations. However, there are a number of exemptions and waivers (see below).

DETERMINING AFFILIATION

According to 13 CFR 121.301(f), an affiliation occurs when one entity controls or has the power to control another entity, or when a third party controls both entities. It is important to note that control does not have to be exercised; merely the power to control will suffice for purposes of determining affiliation.

The new guidance makes clear that control, and therefore affiliation, will exist under any of the following four circumstances:

EXEMPTIONS & WAIVERS

The new guidance confirms that the affiliation rules are waived for the following entities:

In addition, faith-based organizations are exempted from the affiliation rules, if the relationship is based on a religious teaching or belief, or otherwise constitutes a part of the exercise of religion.


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National Law Review, Volumess X, Number 97