The CARES Act: Afflicted by Affiliation
Understanding the relevant rules
As we have discussed in previous alerts, one of the key features of the recently passed Coronavirus Aid, Recovery, and Economic Security (CARES) Act is the Paycheck Protection Program (PPP). Under this program, Congress allocated $349 billion in low-cost loans for small businesses to access to help pay for payroll, rent, utilities and other operating costs. Up to eight weeks of allowable costs are forgivable under the PPP, meaning that the loans can effectively turn into grants. Venable has provided considerable coverage of the PPP, and the larger CARES Act, which can be accessed here.
The PPP is being administered by the U.S. Small Business Administration (SBA), which brings with it a complex set of rules and qualifications that businesses must navigate. One of the continuing points of confusion is around the concept of affiliation. The SBA has issued varied guidance and rules over the past week, most recently on April 3, 2020. This alert will briefly explain the most recent affiliation rules and outline some considerations for potential applicants to address and consider.
SBA Size Standards and Affiliation, Generally
The PPP is administered as part of the SBA's 7(a) loan program. The SBA has a series of regulations that govern what businesses are eligible for these loans. One of the most important rules addresses the size of eligible businesses, referred to as the size standards. Under the size standards, in general, a business must not exceed a maximum employee head count or revenue total assigned to its particular industry (see, e.g., 13 C.F.R. § 121.201), or meet alternative criteria based on net worth and average net income.
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