On April 2, the SBA released an Interim Final Rule stating that it intends to “promptly” issue additional guidance with respect to the applicability of the affiliation rules to PPP loans. The most recently issued SBA guidance on the eve of April 3, 2020, effectively re-incorporates longstanding management control guidance and simply does not provide the type of relief that many PPMs and private equity sponsors had hoped. § 121.103 How does SBA determine affiliation? Companies are deemed to be affiliates when one entity controls or has the power to control the other entity or when both entities are subj… Affiliation rules In determining a borrower’s eligibility for a PPP loan, the SBA will apply the guidelines set forth in Section 121.301 of the SBA’s regulations (subject to certain statutory and regulatory modifications). The SBA may find affiliation based upon: Ownership – a company is an affiliate of another company if it owns or has the power to control more than 50 percent of the company’s voting equity. The CARES Act permanently rescinded that rule, but it was unclear what would be put in its place. To determine an applicant's affiliates, applicants and lenders should refer to the pre-2020 version of the rule.7 Section 1 102(e) of the CARES Act permanently rescinds an amendment that SBA issued in February. SBA's affiliation rules confirm whether the … Below is the official answer from Q44 as of May 14, 2020. ÀjO Applicability date: This interim final rule applies to applications submitted under the Paycheck Protection Program through June 30, 2020, or until funds To be a “concern,” your business entity must: (1) be organized for profit; (2) have a place of business located in the United States; and (3) make a significant contribution to the U.S. economy through the payment of taxes or use of American products, materials or labor. This guide can help you determine if there is a business affiliation, which can influence whether a business qualifies as small. The U.S. Small Business Administration (SBA) is issuing this guidance to specify the process by which SBA will review contracts entered into by loan applicants in SBA’s financial assistance programs for an affiliation exception under 13 CFR § 121.301(f)(4)(iv)(B) (effective March 11, 2020). “[T]he SBA’s affiliation rules, including those set forth in 13 CFR part 121, do not apply to the This alert will briefly explain the most recent affiliation rules and outline some considerations for potential applicants to address and consider. Question: How do SBA’s affiliation rules at 13 C.F.R. New guidance from the SBA clarifies that applicant should look to 13 CFR 121.301 to determine affiliation, which mitigates this concern. 2020, the SBA’s Office of General Counsel issued a formal memo titled “Size Eligibility and Affiliation Under the CARES Act” in response to questions the SBA has received regarding the affiliation rules applicab le to The SBA’s affiliation rules are broader than most common understandings of the affiliation concept, and will play a large role in determining whether or not a particular business is 1 This article discusses the current status as of publication on the evening of March 27, 2020. Question:The affiliation rule based on ownership (13 C.F.R. Pursuant to this guidance, the SBA has modified the affiliation rules (which are codified 13 C.F.R. So long as a franchise brand is listed on the SBA Franchise Directory, each of its franchisees that meet the SBA’s applicable size standard are eligible to apply for its own PPP loan. (April 15, 2020) regarding application of SBA’s affiliation rules. The SBA has issued a supplemental Interim Final Rule and related guidance regarding the applicability of affiliation rules to PPP loans. § 107.20, et. These meas… Below is the official answer from Q44 as of May 14, 2020. The SBA’s affiliation rules are broader than most common understandings of the affiliation concept, and will play a large role in determining whether or not a particular business is 1 This article discusses the current status as of publication on the evening of March 27, 2020. SBA Affiliation Rules With the exception of the three business categories noted above, the SBA affiliation rules will determine whether the number of employees of other entities need to be added to an applicant’s employee count for PPP eligibility purposes. The failure of small venture-backed businesses to qualify for Paycheck Protection Loans could cost more than 275,000 jobs this year directly and more 1 million jobs in total, including indirect losses. Link to an amendment published at 85 FR 66178, Oct. 16, 2020. SUMMARY:On April 2, 2020, the U.S. Small Business Administration (SBA) issued an interim final rule (the Initial Rule) announcing the implementation of sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act). Taste Radio Ep. See 85 FR 7622 (Feb. 10, 2020). On Monday April 13, 2020, the FAQs were updated with two important clarifications on the existing waiver of the affiliation rules for businesses in the restaurant and hospitality sectors and franchisees. 3. The SBA has also provided responses to a number of FAQs posted on the SBA's website and updated through April 7, 2020. The Small Business Administration (SBA) has released additional guidance as it relates to the affiliation rules applicable to its Paycheck Protection Program (PPP). 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. The affiliation rules should be applied and considered when testing for eligibility amongst owners, as … Our separate post outlines the Paycheck Protection Program (“PPP”), which is administered by the U.S. Small Business Administration (SBA), and is a distinct component of the Act. April 3, 2020 1. UNDERSTANDING SBA’S AFFILIATION RULES 2014 NATIONAL HUBZONE CONFERENCE SEPTEMBER 19, 2014 888 17th Street, NW, 11th Floor Washington, DC 20006 Tel: (202) 857-1000 Why size matters How affiliation Late on April 3, 2020 the SBA issued further PPP Affiliation Guidance that supplements the April 2 Interim Final Rule and a summary addressing Affiliation Rules Applicable to SBA Paycheck Protection Program (PPP Loan Affiliation Rules). Since PPP eligibility is based on qualification as a small business concern under applicable SBA rules, which related companies (both domestic and foreign) need to be counted to determine the size of a loan applicant for PPP purposes? The affiliation rules may make it difficult for many venture-backed companies to be SBA eligible. 121.301(f)(6). 23. Applying SBA's Affiliation Rules and Guidance to Private Equity and Venture Capital Portfolio Companies Seeking PPP Loans David Jennings , David Kim , Tessa Trelz Stinson LLP Below is the official question from Q44 as of May 14, 2020. 13 C.F.R. affiliate rules applicable to SBA’s implementation of sections 1102 and 1106 of the Act and requests public comment. Section 1102 of the Act temporarily adds a new program, titled … Business concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. AGENCY:U. S. Small Business Administration. None of the information on this site constitutes legal advice. Below is the official answer from Q23 as of May 14, 2020. Any business that applied for a PPP loan prior to the issuance of the supplemental SBA guidance, which was published on April 23, 2020, and repays the loan in full by May 7, 2020 will be deemed by the SBA to have made the DATES: Effective date: This interim final rule is effective April 15, 2020. (1) Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. 202/Monday, October 19, 2020/Rules and Regulations 66215 1 See 85 FR 20817 (April 15, 2020) regarding application of SBA’s affiliation rules and the exemption of otherwise qualified faith-based The affiliation rules do not apply to faith-based organizations that would otherwise be qualified for PPP loans, but for affiliation. SBA Affiliation Rules. Exceptions to Affiliation: For purposes of PPP, the SBA’s affiliation and headcount aggregation rules are waived for the following business concerns: We have no affiliation with the U.S. Small Business Administration or any other government agency. The Trump administration should waive the Small Business Administration’s “affiliation rule” in this crisis to prevent these mass layoffs and furloughs. 85, No. 632) on the basis of the employee-based size standard must do the same. The guidance also reinforces that applicants must consider affiliation rules as part of their PPP eligibility determination. April 11, 2020 Applying SBA's Affiliation Rules and Guidance to Private Equity and Venture Capital Portfolio Companies Seeking PPP Loans David Jennings, David Kim, Tessa Trelz Stinson LLP + … The SBA issued additional guidance on the applicability of this loan program and the applicable affiliation rules. ACTION:Interim Final Rule. Affiliation Rules: The SBA has issued affiliation rules under the Small Business Act (13 CFR 121.103 and 13 CFR 121.301), which rules generally require aggregation of employees of businesses under common “control,” to SBA Issues Second Interim Final Rule – Clarification of Partnership Filings, Individuals with Self-Employment Income and Affiliation Rules 04.15.2020 The CARES Act was enacted to provide immediate assistance to individuals, families and organizations affected by the COVID-19 pandemic. The affiliation rule … According to 13 C.F.R. By clicking "continue" and using this site, you acknowledge that you have read and understand this message. On Monday April 13, 2020, the FAQs were updated with two important clarifications on the existing waiver of the affiliation rules for businesses in the See our Advertiser Disclosure. Business concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. Federal Register/Vol. 121. This alert provides an overview of the SBA's size and affiliation rules. Generally, in SBA size standards and affiliation, generally The SBA has issued varied guidance and rules over the past week, most recently on April 3, 2020. 2 Keep in mind that the CARES Act itself repealed February 2020 guidance on 3 Exemptions from the affiliation rules that cover specific industries such as hotels, food preparation, and franchises were not granted for companies typically backed by venture capital firms. Effective Date: 03/11/2020 Document Type: Rule Document Citation: 85 FR 7622 Page: 7622-7652 (31 pages) CFR: 13 CFR 103 13 CFR 120 13 CFR 121 RIN: 3245-AG74 Document Number: 2020-02128 The SBA has issued a supplemental Interim Final Rule and related guidance regarding the applicability of affiliation rules to PPP loans. 6. 02/10/2020 Agency: Small Business Administration Dates: Effective date: This rule is effective March 11, 2020. On April 24, 2020, the SBA issued a new interim final rule further clarifying affiliation and eligibility. 121.301(f) apply with regard to counting the employees of foreign and U.S. affiliates? By virtue of congressional mandates, and under the National Defense Authorization Act (NDAA), the Small Business Administration regulations has made recent changes to various SBA affiliation rules that regulate government contracts for small businesses including those set aside for designated SBA programs and the limitation on subcontracting. In order to create greater uniformity among SBA's various affiliation rules, SBA proposed to add to 121.301(f) a newly organized concern rule, similar to the one which had applied to the Business Loan Programs prior to the 2016 Learn about the four tests for affiliation and how they apply to participants in the Paycheck Protection Program. The SBA's size and affiliation rules, however, might make it challenging for companies that have taken venture capital, private equity or other investments to take advantage of these programs. The SBA has provided that an affiliation will exist when “concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or … However, the Small Business Administration’s (SBA) broad affiliation rules could make many of those companies ineligible to participate unless the affiliation rules are relaxed. , which is different than the SBA Business Loan regulations upon which the PPP is based. Under SBA’s affiliation rules for the financial assistance programs, SBA may find a loan applicant to be affiliated … Øuýëéåó㇇õêÕõîîûOõ.€f iï•#£­*€Ó-¨÷×ñ׿ŸÔõí‡_ßÿ{Q¯_ßý}¯.×ûŒzxVF©ç‡o—€ This website is not an agent, representative or broker of any lender and does not endorse or charge you for any service or product. 121.301 (f) (6). Question: How do the $10 million cap and affiliation rules work for franchises? 235: ‘Don’t Quit’ And The Rules That Define Jake Steinfeld’s Decades Of Success Beverage Industry Jobs Director of National Accounts, East - Kitu Life Inc - Super Coffee This SBA regulation provides some general principles of affiliation but notes that for applicants in SBA’s Business Loan, Disaster Loan, and Surety Bond Guarantee Programs, the size standards and bases for affiliation are set forth in 13 CFR 121.301. Notably, on April 3, 2020, the SBA released guidance titled “Affiliation Rules Applicable to U.S. Small Business Administration Paycheck Protection Program” ("Guidance") which states that the first four of the bases for affiliation seq. 23450 Federal Register/Vol. The Small Business Administration, or SBA, said it considers ownership, management, contractual relationships and minority shareholders. AFFILIATION RULES APPLICABLE TO U.S. SMALL BUSINESS ADMINISTRATION PAYCHECK PROTECTION PROGRAM. 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. This means that applicants need to track the rules and guidance in effect at the time that they apply. Under the Under the Regulations, most portfolio companies controlled (by … The new PPP affiliation rules in SBA Interim Final Rule 2 clarify which SBA affiliation rules apply to the PPP. SBA Affiliation Rules for Calculating a Concern's Size. The SBA indicated that the FAQs would be updated on a regular basis. PPP 2.0 – New Round & Second-Draw Details, FAQ About Paycheck Protection Program (PPP) Loans, https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf, California Residents: Do Not Sell My Personal Information. On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Question: How do the $10 million cap and affiliation rules work for franchises? In determining a borrower’s eligibility for a PPP loan, the SBA will apply the guidelines set forth in Section 121.301 of the SBA’s regulations (subject to certain statutory and regulatory modifications). 82/Tuesday, April 28, 2020/Rules and Regulations SMALL BUSINESS ADMINISTRATION [Docket Number SBA–2020–0021] 13 CFR Parts 120 and 121 RIN 3245–AH37 Business Loan Program 632) on the basis of the employee-based size standard must do the same. You have reached SBA.com®. An applicant must count all of its employees and the employees of its U.S. and foreign affiliates, unless they have an exception to the affiliation rules. 2 The CARES Act only references 13 C.F.R. This website is not a lender and does not broker loans, make loans or make any credit decisions. Nothing on this website is an offer or a solicitation for a loan. Business concerns seeking to qualify as a “small business concern” under section 3 of the Small … »ò !bÁl.ZÚeÁ¬µÁz¹Àï G7õÏÔ´$¶¹ò$hvZ*FŽ¾Õ\yzÐ!1âîŒ(ÉÄÀöÁxóÌ5`¶]´. 13 C.F.R. 2 The CARES Act only references 13 C.F.R. This interim final rule (SBA Interim Final Rule 2) supplements an earlier SBA Interim Final Rule (SBA-2020-0015), which specifically did not address affiliation. As of October 7, 2020. 13 CFR 121.301 was most recently updated via an interim final rule entitled “Express Loan Programs; Affiliation Standards”, dated … Restaurants and Hotels. 44. SBA’s 2020 amendment would have included a “totality of the circumstances” test (as currently is part of 13 CFR § 121.103), affiliation based on a newly organized concern in the same industry under the same management, and additional bases for affiliation based on identity of interest, including common investments and economic dependence. 85, No. On February 11, 2020, the SBA issued an interim final rule changing the affiliation standards for SBA loans, which took effect on March 11, 2020. §121.103(f), “[c]oncerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party controls or has the power to control both. Four tests for affiliation based on control apply to participants in the Paycheck Protection Program.1For purposes of the determining the number of employees of an applicant to the Paycheck Protection Program, the applicant is considered together with its affiliates. Also, financial assistance from an SBIC is regulated by 13 C.F.R. SBA.com® is not SBA.gov. For private equity and venture capital portfolio companies, PPP participation is laden with a perplexing complication as a result of SBA affiliation rules. ˆ”Ñòÿ§O—ÇËÝx¹Ž£Q ÆÇË`´1^jyø¡¬ŸäMmä%ù7?aImäNòà$îëåõçøåb¦wÓ{’Ë…ž?.¿M‡ãz8NAš‘š^cxŽ‰èó˜ô¬!B¢ëJ!éò€EÌvUi7ÚpñédÚ²O'à §ÔÆÚª*š)‘Á¹ºàtÁ)h¾)èÀ¶iJ•ÓmÜڂëEÓ;Ù)2r.jo;½N &ŠmÂÓa•4 121.301(f)(1)) states that SBA will deem a minority shareholder in a business to control the business if the shareholder has the right to prevent a quorum or otherwise block action by the board of directors or shareholders. See our Advertiser Disclosure for more information on how we try to connect you with a Paycheck Protection Program (PPP) lender or other small business lenders. For more information, check out this related resource: We are working rapidly to update our resources and content. SBA's current affiliation rules already confirm that business concerns owned in whole or substantial part by SBICS are not considered affiliated with such SBICS. The SBA issued additional guidance on the applicability of this loan program and the applicable affiliation rules. 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. Below is the official answer from Q23 as of May 14, 2020 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. ruž ãf8bX‚ÞIÔ NZ'ïÇ7Y¨)À‚ôök€ù¥H¡4 ÒÅyR8ìCWž*Tñ¬*'â ¼*s«ª‡"Á¤mªˆË††­Ë°pž9o ¡ñÚ§d»°&¹VÒèXîm]sEíæ€CK§-õòôÛ>kf:ã¨Ü6:ßx@'¶SS—RQ]jq;Ðkô¾K{šy­bÜÆ The SBA indicated that the FAQs would be updated on a regular basis. 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. We are a private business providing resources for small businesses, including resources for PPP loans. 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. Small Business Advice (or "SBA®" or SBA.com®") offers business advice, information and other services related to the formation, financing, operation and management of businesses. (a) General Principles of Affiliation. Generally, in determining PPP eligibility, a borrower will be considered together with its affiliates. Given the amount of questions about the affiliate rules, the SBA has posted Affiliation Rules. Final Regulations, which relate to the SBA’s “affiliation rules,” were issued on April 3, 2020. On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all States, territories, and the District of Columbia. The SBA affiliation rules also create an exception under 13 C.F.R. With the COVID-19 emergency, many small businesses nationwide are experiencing economic hardship as a direct result of the Federal, State, tribal, and local public health measures that are being taken to minimize the public's exposure to the virus. Pursuant to the Updated Affiliation Guidance, however, PPP borrowers can test affiliation using the more narrow affiliation rules of 13 CFR 121.301. 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