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PPP Frequently Asked Questions Update: Question #44

On May 5, 2020 the U.S. Small Business Administration (SBA) provided an update to the PPP Frequently Asked Questions, including Question 44 pertaining to foreign affiliates.

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Insights  <  PPP Frequently Asked Questions Update: Question #44 SBA’s affiliation rules

On May 5, 2020 the U.S. Small Business Administration (SBA) provided an update to the PPP Frequently Asked Questions, including Question 44 pertaining to foreign affiliates.

On May 5, 2020 the U.S. Small Business Administration (SBA) provided an update to the PPP Frequently Asked Questions:

Question 44:

Question: How do SBA’s affiliation rules at 13 C.F.R. 121.301(f) apply with regard to counting the employees of foreign and U.S. affiliates?

Answer: 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. 13 C.F.R. 121.301(f)(6). Business 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.

This clarification puts certain borrowers in a difficult position. In FAQ #3, which was released on April 6, 2020, the SBA provided 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.” Many borrowers and professionals interpreted that language to mean that employees who did not have a principal of place of residence in the United States would not be included in the 500 or fewer count to determine eligibility. The SBA did not make any changes to Question #3 upon the release of Question #44.

As a result of this uncertainty, we recommend that a borrower who submitted a PPP application, excluding the foreign affiliate employees from its aggregate employee counts in determining eligibility, reach out to their legal counsel and bank to reevaluate their position.

Also, as of this release (May 5, 2020), Treasury and  the SBA have not yet released the much anticipated guidance surrounding the PPP forgiveness rules.

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Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

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