SBA Issues Additional Guidance Under the Paycheck Protection Program

Late in the evening on Friday, April 3, 2020, the Small Business Administration ("SBA") took certain actions to help address some of the gating questions that arose during the course of the week regarding loans available under the Paycheck Protection Program (the "PPP") created by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Specifically, the SBA issued an updated PPP loan application form and issued additional guidance regarding how to interpret the affiliation rules. Together, these revisions should give comfort to companies preparing to submit PPP loan applications in the coming days, including:

1. Clarity Regarding Affiliation Rules: The guidance released on Friday sets out four tests for affiliation based on control that apply to participants in the PPP. This guidance unfortunately provides that affiliation under any of the four tests is sufficient to establish affiliation for PPP loan applicants.
2. Good News for Investor-Backed Companies: Investor-backed companies were in a bit of a bind because of potential liability concerns, but the updated PPP application form provides relief. The initial PPP application form required any 20% owner of a business applying for a PPP loan to make certain certifications, the violation of which could have resulted in criminal penalties. These certifications included information that minority owners might not have access to or control over; as a result, these certifications had a potential chilling effect on the ability for investor-backed companies to participate in the PPP. The updated PPP application form released Friday evening, however, does not require 20% owners to make any certifications and, therefore, does not ascribe any liability to 20% owners. This slight but significant change should allow investor-backed companies to take advantage of the PPP.
3. Good News for Subsidiaries of Foreign Companies: Similarly, it is now clearer that wholly-owned subsidiaries of foreign companies can participate in the PPP. The initial PPP application form required any 20% owner to certify that such 20% owner was a U.S. citizen or had lawful permanent residence status. Companies with a foreign parent, or any foreign investor that held more than 20%, could not have submitted an application. The updated PPP application form released Friday evening, however, does not require 20% owners to make any certifications with respect to citizenship or lawful permanent residence status; therefore, companies with foreign parents/investors are now eligible to submit PPP loan applications.