On April 6, 2020 the Small Business Administration, in conjunction with the Department of Treasury, issued additional set of Frequently Asked Questions (FAQs) to address questions regarding the Paycheck Protection Program (PPP). Among other things, these FAQs provide yet another “clarification” of the eligibility provisions under the SBA interim final regulation – some businesses with more than 500 employees may qualify for PPP loans if their business has 500 or fewer employees whose principal residence is in the U.S., in addition to previously stated eligibility criteria:

3. Question: Does my business have to qualify as a small business concern (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) in order to participate in the PPP?

 Answer: No. In addition to small business concerns, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standards for the industry in which it operates (if applicable). Similarly, PPP loans are also available for qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of the Small Business Act that have 500 or fewer employees whose principal place of residence is in the United States, or meet the SBA employee-based size standards for the industry in which they operate.

Note that these PPP loans apply the affiliation rules of 13 C.F.R. 121.301(f), excluding the totality of the circumstances provision.  It is the responsibility of the applicant to analyze and address affiliation and  other questions on the application accurately.  This is of particular importance since the applicant must certify in its application that it is eligible for a PPP loan, and providing a false statement is subject to criminal and monetary penalties, not to mention potential liability under the False Claims Act which could be triggered even if the statement was not “knowingly” false. Businesses considering their eligibility for the PPP should carefully review all SBA and Department of Treasury guidance, in addition to the SBA’s interim final PPP regulation.   Many companies have been anxiously awaiting further guidance that would relax the affiliation rules.  The FAQs were updated on April 7^th and April 8^th, but none of the updates have addressed affiliation matters.

We are closely monitoring developments in this space and will be issuing further alerts in coming days.