In our post of April 4, we advised there was an ambiguity between the CARES Act and subsequent guidance issued by the Small Business Administration (SBA) on whether employees of foreign affiliates of applicants are considered when determining eligibility for Paycheck Protection Program (PPP) loans.

Applicants in the SBA’s Business Loan Programs (which includes the PPP) are generally subject to the affiliation rule under 13 CFR Section 121.301, subject to certain statutory waivers.  These rules provide that in determining a concern’s size (and therefore its loan eligibility), the SBA counts the employees of both the concern whose size is at issue and all of its domestic and foreign affiliates.

However, in an Interim Final Rule, the SBA has indicated that an entity generally is eligible for the PPP if it, combined with its affiliates, has 500 or fewer employees whose principal place of residence is in the United States.

In the latest update of its PPP Frequently Asked Questions (FAQ’s), issued May 5, 2020, the SBA clarified this ambiguity by unequivocally stating that “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” and that “[b]usiness concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. 632) on the basis of the employee-based size standard must do the same.”

Any business concern that obtained a PPP loan by excluding the employees of its foreign affiliates may now want to revisit their applications (and the eligibility certifications they made) in light of the anticipated (and well-publicized) scrutiny of PPP loans.

Please contact the authors or any Jackson Lewis attorney with questions.

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Photo of Melissa Ostrower Melissa Ostrower

Melissa Ostrower is Principal in the New York City office of Jackson Lewis P.C.

Ms. Ostrower advises companies on all aspects of employee benefits law, including compliance with ERISA and the Code as well as administrative matters and fiduciary issues relating to benefit…

Melissa Ostrower is Principal in the New York City office of Jackson Lewis P.C.

Ms. Ostrower advises companies on all aspects of employee benefits law, including compliance with ERISA and the Code as well as administrative matters and fiduciary issues relating to benefit plans.  Ms. Ostrower has extensive experience in executive compensation matters and counsels both public and private companies on executive compensation issues, including Section 409A and 162(m) of the Code.

Ms. Ostrower is also a member of the Jackson Lewis healthcare reform task force and is intimately involved in helping Jackson Lewis clients ensure compliance with recently enacted healthcare reform legislation.

Ms. Ostrower is a graduate of Brandeis University (B.A., M.A.), George Washington University Law School (J.D.) where she was a member of The Law Review, and New York University (LL.M.).

Photo of Robert R. Perry Robert R. Perry

Robert R. Perry is a principal in the New York City, New York, office of Jackson Lewis P.C. He has more than 20 years of experience in the area of employee benefits law.

Rob’s practice includes counseling clients on all aspects of employee…

Robert R. Perry is a principal in the New York City, New York, office of Jackson Lewis P.C. He has more than 20 years of experience in the area of employee benefits law.

Rob’s practice includes counseling clients on all aspects of employee benefits and executive compensation. Rob also advocates on behalf of clients in benefits-related disputes, as well as in administrative proceedings before the Internal Revenue Service, the United States Department of Labor and the Pension Benefit Guaranty Corporation.

When not representing clients, Rob enjoys sports, music and pinball.