Below is the official answer from Q23 as of May 14, 2020. Tweet. The April 3 guidance provided clarity on the affiliation rules that apply to the PPP. All other businesses must use the affiliation rules in 13 C.F.R. 7, 2020 at 8:04 am. 2 The CARES Act only references 13 C.F.R. For further detailed discussion of the affiliation rules, see the SBA’s “Affiliation Rules Applicable to U.S. Small Business Administration Paycheck Protection Program.” SBA Issues Guidance on Affiliation Rules, Uncertainty Remains. You just learned about: Normal Affiliation Rules For more information, check out this related resource: Funding a Business § 121.301(f). Unfortunately, this dealt only with the narrow question of whether the affiliation rules apply to faith-based organizations. The SBA affiliation rules do not apply to Sector 72 entities that employ not more than a total of 500 employees for purposes of the PPP. Treasury has provided a more readable, two-page summary . SBA's issuance of the PPP Loan Affiliation Rules confirm that SBA is reverting to the old version of 13 C.F.R. Additionally, on April 3, 2020, the SBA issued guidance on the affiliation rules applicable to the PPP, 2 and on April 4, 2020 the SBA released a letter from its General ounsel’s Office 3 addressing these affiliation rules and the exemptions from affiliation created under the … SBA Affiliation Rules Generally An applicant to the PPP generally must have 500 or fewer employees and must satisfy certain other eligibility requirements. The affiliation rules are important for helping companies determine if they can seek out these important loans. For purposes of the PPP, the SBA states that “control” may be present based on any of the following criteria: Affiliation based on ownership. For purposes of determining the number of employees, each applicant is considered together with its affiliates pursuant to the SBA’s existing affiliation rules. The Small Business Administration (SBA) issued guidance on April 3, 2020, about Affiliation Rules applicable to the U.S. Small Business Administration Paycheck Protection Program (PPP), part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). (15 U.S.C. ... ‘Don’t Quit’ And The Rules That Define Jake Steinfeld’s Decades Of Success SBA’s existing affiliation exclusions apply to the PPP, including, for example the exclusions under 13 … Guidance for PPP loans under SBA Borrowers of PPP loans must apply SBA’s affiliation rules as spelled out in 13 CFR § 121.301(f), which apply to SBA’s 7(a) program and were adopted for the PPP through the CARES Act. The SBA’s affiliation rules may require a business to count employees of an affiliate business towards the employee cap for SBA loans. The new Interim Final Rule provides clarification regarding the application of the SBA’s affiliation rules in determining borrower eligibility for a PPP loan. § 121.103. Reg. 632), meets the applicable SBA employee-based or revenue-based size standard, or meets the tests in SBA’s alternative size standard, after applying the affiliation rules, if applicable. The Treasury and the SBA both released guidance on April 3, detailing how the affiliation rules apply for purposes of determining an entity’s eligibility to receive a PPP loan. The SBA’s affiliation rules continue to apply in most circumstances, except as described below, which usually results in majority-owned private equity portfolio companies being ineligible. ... and for all other SBA loan options besides the PPP … The forgiveness system is now working – PPP loans are being forgiven and the SBA … The SBA issued additional guidance on the applicability of this loan program and the applicable affiliation rules. Affiliation determinations are significant under the PPP because the applicant and each “affiliate” is viewed as one business for purposes of calculating the number of employees. Importantly, the SBA’s size and affiliation rules are broader than most common understandings of the affiliation concept in other aspects of the law and will play a pivotal role in determining whether or not a particular business may be eligible for a PPP (or other SBA… Since April 3, 2020, the SBA has provided guidance relating to the PPP, including guidance titled "Affiliation Rules Applicable to U.S. Small Business Administration Paycheck Protection Program," and a Letter Re: Size Eligibility and Affiliation Under the CARES Act. The SBA has issued guidance on the affiliation rules (the (“Guidance”) applicable to the implementation of the Paycheck Protection Program (“PPP”). 13 C.F.R. 121.301(f)(6). Private equity firms and hedge funds themselves are not eligible for PPP loans under existing SBA regulations. For purposes of determining the number of employees of an applicant to the PPP (which requires an applicant to have no more than 500 employees), the applicant must include employees of “affiliates” as determined […] 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. Carol Ortenberg Apr. For PPP loans, applicants can have no more than 500 employees, but it was unclear how that limit would apply to churches and other religious organizations that have a denominational or other religious connection. Prior to the CARES Act, 501(c)(3) nonprofit organizations were not eligible for SBA loans under section 7(a) of the Small Business Act. Question: How do the $10 million cap and affiliation rules work for franchises? A: The SBA’s Affiliation Rules are complex. Answer: If a franchise brand is listed on the SBA Franchise Directory, each of its franchisees that meets the applicable size standard can apply for a PPP loan. A: Yes. Affiliation arises when one individual or entity controls the ownership of two or more entities. Lenders have 60 days to review your forgiveness documents and the SBA has 90 days. Business concerns seeking to qualify for a PPP loan as a “small business concern” on the basis of the employee-based size standard must do the same. As discussed in our April 3, 2020 article, “ Can Qualified Small Businesses Get a PPP Loan under the CARES Act? Affiliation Rules The SBA issued an interim final rule on April 3 concerning its complicated affiliation rules. BCLP is ready and able to assist in aggregating your business’ employees for the purpose of applying for a PPP … Application of Control Rules: As an initial matter, note that the SBA affiliation rules are waived relative to PPP for accommodation and food service companies (NAICS code 72) and certain franchisees and affiliates of companies licensed as SBICs. Since the SBA’s Paycheck Protection Program went into effect last Friday, there has been considerable confusion about eligibility and, in particular, what affiliation rules apply to program applicants. By: David M. Lay & Xiang "Cathy" Zhang Under the Coronavirus Aid, Relief, and the Economic Security Act (CARES Act), two loan programs are available to eligible businesses severely impacted by the Coronavirus (COVID-19) … This means that applicants need to track the rules and guidance in effect at the time that they apply. SBA’s existing affiliation exclusions apply to the PPP, including, for example the exclusions under 13 CFR 121.103(b)(2). The SBA also clarified the scope of what are known as “affiliation rules” for borrowers seeking to obtain PPP loans (the Affiliation Rule). A Guide to the SBA’s Size Program and Affiliation Rules March 2014 U.S. Small Business Administration A handbook for small businesses and Federal officials interested in learning about the SBA’s size program. Section 121.103(a)(8) of the Small Business Act provides that applicants in SBA’s Business Loan Programs, which would include the PPP, are subject to the affiliation rules contained in 13 CFR 121.301. 04.03.2020 CARES ACT: Will SBA Affiliation Rules Cause Startups and Portfolio Companies to be Ineligible for PPP and EIDL Loans, and is Relief on the Way? BCLP notes members of Congress and the SBA have hinted at additional guidance for affiliation rules. 23. Q: Has the SBA issued any guidance on the application of the affiliation rules? Foremost, the Updated Affiliation Guidance confirms the view of a growing number of market participants (notwithstanding express language in the CARES Act that suggested the contrary), which is that the SBA’s affiliation rules for the PPP should be analyzed under the purview of 13 CFR 121.301 and not 13 CFR 121.103. The CARES Act allows these organizations to be eligible for PPP, but also subject to the affiliation rules under 13 C.F.R. On April 3, 2020, the Treasury issued interim final rules (Paycheck Protection Program – Interim Final Rule on Affiliation) and associated guidance (Paycheck Protection Program – Applicable Affiliation Rules) on how to determine whether an entity is an affiliate of an applicant for this purpose. AFFILIATION CONSIDERATIONS AND PPP LOANS. As of the publishing date, the SBA has not provided such guidance. 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