New Guidance on Affiliate Rules for Paycheck Protection Program Loans – Duane Morris
On April 3, 2020, the Small Business Administration (SBA) issued guidance on affiliation rules, but it did not provide any of the relief that the private equity and venture capital industry was hoping for. This Alert highlights crucial points and initial observations on the guidance. A second Alert will follow with more detailed analysis.
Highlights from the Rule and Guidance
Do the affiliation rules apply to your business?
Yes, except for the following businesses, for which the rules in Section 121.103[1] do not apply. This includes: (1) businesses with an NAICS code beginning with 72 and that have more than 500 employees; (2) any business operating as a franchise; (3) businesses that receive financial assistance from an SBIC lender; and (4) as a result of the April 3 guidance, faith-based organizations are exempt from the application of any SBA affiliation rules.
Why do the affiliation rules matter?
If the affiliation rules affect your business, you may exceed the employee limitation eligibility requirements for a Paycheck Protection Program (PPP) loan. The affiliate tests are fact specific and you should review with your advisor when determining your eligibility for a PPP loan.