New Payment Protection Program Rule Regarding Foreign Affiliates Complicates Eligibility Analysis for Borrowers

Blank Rome LLP

On May 18, 2020, a Small Business Administration (the “SBA”) published a new Interim Final Rule(the “New Foreign Affiliate Rule”) underneath a Paycheck Protection Program (the “PPP”), addressing a diagnosis of unfamiliar affiliates when calculating a PPP borrower’s eligibility formed on worker count. The New Foreign Affiliate Rule purports to explain before superintendence released by a SBA in a Frequently Asked Questions published from time to time on a U.S. Department of a Treasury’s website (the “FAQs”). Borrowers should examination a New Foreign Affiliate Rule and cruise either it impacts their eligibility determinations underneath a PPP.  

Noting that there is doubt among certain marketplace participants, a New Foreign Affiliate Rule states that when last either a borrower has some-more than 500 employees, a borrower contingency embody all employees of a domestic and unfamiliar affiliates (except where a PPP specifically states that connection manners do not apply). The SBA has pronounced that a New Foreign Affiliate Rule is dictated to explain a superintendence in FAQ series 44 published on May 5, 2020, though a new superintendence appears to be directly discordant to SBA’s superintendence supposing by FAQ series 3 published on Apr 6, 2020.2 FAQ series 3 states that a business is authorised for a PPP loan if it “has 500 or fewer employees whose principal place of chateau is in a United States.” Many field expected distributed a series of employees of their affiliates by including usually employees whose principal place of chateau is in a United States on a basement of this now superseded guidance.

The New Foreign Affiliate Rule might lead to supernatural results, such as a following:

  • A association has 715 employees worldwide, though usually 480 that have a principal place of chateau in a United States, and no affiliates. Prior to May 5, 2020, this association would be underneath a protected bay described below, and this business would have been authorised underneath a superintendence in FAQ series 3. However, underneath a New Foreign Affiliate Rule, this association would not be authorised on or after May 5, 2020.
  • Another association has one affiliate. The association and a associate have a total 501 employees worldwide. This association has 400 employees, all of whom have a principal place of chateau in a United States and a associate has 101 employees, all of whom do not have a principal place of chateau in a United States. This association is not authorised for a PPP loan on or after May 5, 2020, formed on a New Foreign Affiliate Rule.

To a service of some borrowers, a SBA has mitigated a impact of this new superintendence by extenuation a protected bay to borrowers who practical for a PPP loan before to May 5, 2020. Those borrowers will not be found to be incompetent for a PPP loan formed on their ostracism of non-U.S. employees from a 500-employee calculation if a borrower and a affiliates had no some-more than 500 employees whose principal place of chateau is in a United States. The New Foreign Affiliate Rule points to FAQ series 44, that was published on May 5, 2020, and states that an applicant contingency count all of a employees and a employees of a U.S. and unfamiliar affiliates for functions of a PPP’s distance standard.

Borrowers that practical for a PPP loan on or after May 5, 2020 should reassess their worker count to a border that it released any unfamiliar employees of it or a affiliates on a basement of a superintendence in a New Foreign Affiliate Rule.

The New Foreign Affiliate Rule also records that a SBA’s before superintendence per employees whose principal place of chateau is in a United States stays germane to a borrower’s calculation of payroll costs for functions of last a PPP loan volume and a calculation of loan forgiveness—i.e., only a payroll costs for U.S. proprietor employees are authorised for inclusion in these calculations.  

We are accessible to support a clients in assessing a impact of a New Foreign Affiliate Rule on their eligibility for a PPP loan.


1  Docket Number SBA-2020-0021, 13 CFR Parts 120 and 121, RIN 3245-AH37, accessible here.

2 The Frequently Asked Questions (FAQs) (as of May 18, 2020) are accessible here.