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. This means that applicants need to track the rules and guidance in effect at the time that they apply. 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. The SBA issued additional guidance on the applicability of this loan program and the applicable affiliation rules. Business concerns seeking to qualify as a âsmall business concernâ under section 3 of the Small Business Act (15 U.S.C. Business concerns seeking to qualify as a âsmall business concernâ under section 3 of the Small Business Act (15 U.S.C. ru ãf8bXÞIÔ NZ'ïÇ7Y¨)Àôökù¥H¡4 ÒÅyR8ìCW*Tñ¬*'â ¼*s«ª"Á¤mªËË°p9o ¡ñÚ§d»°&¹VÒèXîm]sEíæCK§-õòôÛ>kf:ã¨Ü6:ßx@'¶SSRQ]jq;Ðkô¾K{ybÜÆ 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 13 C.F.R. The Small Business Administration, or SBA, said it considers ownership, management, contractual relationships and minority shareholders. The SBA indicated that the FAQs would be updated on a regular basis. Below is the official answer from Q44 as of May 14, 2020. 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. 632) on the basis of the employee-based size standard must do the same. 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. 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. New guidance from the SBA clarifies that applicant should look to 13 CFR 121.301 to determine affiliation, which mitigates this concern. 632) on the basis of the employee-based size standard must do the same. 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. 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. 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. 23. Section 1102 of the Act temporarily adds a new program, titled … 2 The CARES Act only references 13 C.F.R. 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 13 C.F.R. Below is the official answer from Q23 as of May 14, 2020. Question: How do SBAâs affiliation rules at 13 C.F.R. ÀjO 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). Given the amount of questions about the affiliate rules, the SBA has posted Affiliation Rules. SBA.com® is not SBA.gov. 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 … 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. The Trump administration should waive the Small Business Administration’s “affiliation rule” in this crisis to prevent these mass layoffs and furloughs. As of October 7, 2020. This alert will briefly explain the most recent affiliation rules and outline some considerations for potential applicants to address and consider. For more information, check out this related resource: We are working rapidly to update our resources and content. The guidance also reinforces that applicants must consider affiliation rules as part of their PPP eligibility determination. You have reached SBA.com®. Taste Radio Ep. The SBA’s affiliation rules are a fact-specific set of rules based upon the individual circumstances of each company’s ownership structure, and include a rebuttable (and in the case of venture capital-backed companies, generally incorrect) presumption that many companies See our Advertiser Disclosure. AFFILIATION RULES APPLICABLE TO U.S. SMALL BUSINESS ADMINISTRATION PAYCHECK PROTECTION PROGRAM. 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. Below is the official answer from Q44 as of May 14, 2020. ACTION:Interim Final Rule. “[T]he SBA’s affiliation rules, including those set forth in 13 CFR part 121, do not apply to the The affiliation rules should be applied and considered when testing for eligibility amongst owners, as … By clicking "continue" and using this site, you acknowledge that you have read and understand this message. 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 new PPP affiliation rules in SBA Interim Final Rule 2 clarify which SBA affiliation rules apply to the PPP. 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. 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 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. Generally, in determining PPP eligibility, a borrower will be considered together with its affiliates. 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 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). (a) General Principles of Affiliation. This guide can help you determine if there is a business affiliation, which can influence whether a business qualifies as small. 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 Business concerns seeking to qualify as a “small business concern” under section 3 of the Small … 121. Nothing on this website is an offer or a solicitation for a loan. ØuýëéåóãõêÕõîîûOõ.f iï#£*Ó-¨÷×ñ׿Ôõí_ßÿ{Q¯_ßý}¯.×ûzxVF©ço 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. Pursuant to the Updated Affiliation Guidance, however, PPP borrowers can test affiliation using the more narrow affiliation rules of 13 CFR 121.301. »ò !bÁl.ZÚeÁ¬µÁz¹Àï G7õÏÔ´$¶¹ò$hvZ*F¾Õ\yzÐ!1âî(ÉÄÀöÁxóÌ5`¶]´. 02/10/2020 Agency: Small Business Administration Dates: Effective date: This rule is effective March 11, 2020. We have no affiliation with the U.S. Small Business Administration or any other government agency. 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 2 Keep in mind that the CARES Act itself repealed February 2020 guidance on 3 85, No. , which is different than the SBA Business Loan regulations upon which the PPP is based. (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. 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. 3. This website is not a lender and does not broker loans, make loans or make any credit decisions. None of the information on this site constitutes legal advice. 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