Affiliation Rules Apply
When the CAREs Act was adopted, it provided that certain applicants for PPP loans, particularly businesses in the hotel and restaurant industries, would be exempt from the application of the SBA’s affiliation rules, which generally require that entities with a commonality of ownership, management or control aggregate their employees together for determining whether size requirements are met for participation in SBA programs. Although there had been widespread speculation that the SBA would ease the affiliation rules beyond the previously announced exception, new guidance from the SBA, a summary of which can be found here, indicates that no additional exceptions to the affiliation rules apply at this time. The application of the affiliation rules could impact the eligibility of companies that are part of a corporate structure in which ownership or control of subsidiaries is shared at a higher tier, including private equity-backed portfolio companies.
Faith-Based Organizations May Apply
In the Interim Final Rule that was released by the SBA on April 2, 2020, certain classes of companies and organizations listed in 13 CFR 120.110 are deemed ineligible to receive PPP loans. The list of companies includes banks, insurance companies, government agencies, pawn shops and illegal businesses, as well as certain “passive businesses”, such as apartment buildings and residential facilities that do not provide medical services. The list of exceptions also includes businesses primarily engaged in “teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting.” The SBA has issued guidance, found here, that makes clear that faith-based organizations may apply for PPP loans.
The SBA Focus Group of the COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the PPP loan program is implemented.
Author Matthew McDonald is a partner in the Corporate & Securities Department at Klehr Harrison.