David Fontes | May 20, 2020
On May 18, 2020, the U.S. Small Business Administration (SBA) issued Interim Final Rule on Treatment of Entities with Foreign Affiliates. It appears that this rule was issued in direct response to PPP Frequently Asked Question 44:
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 at 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.
See our previous article concerning the uncertainty around question 44.
The interim rule addresses the following:
- Any entity that, together with its domestic and foreign affiliates, does not meet the 500-employee or other applicable PPP size standard is therefore ineligible for a PPP loan.
- As an exercise of enforcement discretion due to reasonable borrower confusion based on SBA guidance (Frequently Asked Question 3) SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-U.S employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States. Such borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis.
- Under no circumstances may PPP funds be used to support non-U.S. workers or operations.
The complete Interim Final Rule on Treatment of Entities with Foreign Affiliates is available on the U.S. Treasury website. It appears the SBA understands the confusion caused by Frequently Asked Question 3 and is allowing borrowers to keep the funds, as long as they applied for the loan prior to May 5, 2020. Unfortunately, this rule was issued later in the day on May 18, 2020 and some borrowers may have already returned the funds to comply with the May 18, 2020 safe harbor deadline.
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