Over the last several weeks, Sullivan has issued numerous client alerts that explore the Paycheck Protection Program (PPP) instituted under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and other funding opportunities available to small businesses.
Yesterday, the Small Business Administration issued additional interim final rules that, among other things, impose an aggregate limit of $20 million of PPP loans to businesses that are part of a single corporate group. Businesses are part of a “single corporate group” if they are majority owned, directly or indirectly, by a common parent. This limitation applies even if the businesses are eligible for a waiver of the affiliation rules under the PPP. Less clear is the true scope of this rule. Does it, for example, apply to ownership of businesses that are in a brother-sister type of relationship, rather than parent-subsidiary, and was there an intent to limit its application to corporate entities? Presumably, additional guidance will be forthcoming as businesses try to make sense of this latest twist.
To the extent the limitation applies, it impacts any loan that was not fully disbursed as of April 30, 2020, including any additional disbursement from an already approved loan that would cause the total loans to a single corporate group to exceed $20 million. In addition, the new rule makes clear that it is the responsibility of the loan applicant to (i) notify the lender if the applicant has applied for or received loans in excess of $20 million and (ii) withdraw or request cancellation of any pending loan application or approved loan not in compliance with the limitation. An applicant’s failure to do so may result in the loan not being eligible for forgiveness.