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(8) For applicants in SBA's Business Loan, Disaster Loan, and Surety Bond Guarantee Programs, the size standards and bases for affiliation are set forth in § 121.301. 41423 (June 27, 2016) (to be codified at 13 C.F.R. We believe that reference to be in error as SBA regulations state that affiliation rules found in 13 C.F.R. The CARES Act refers to the affiliation rules of 13 C.F.R. 3Note that the OHA case law discussed here is in the context of the SBA’s general affiliation rules under 13 C.F.R. With that said, the Act also expressly waives the SBA’s affiliation rules for three types of businesses: (1) industry “Sector 72,” which applies to Accommodation and Food Services, such that businesses within this sector qualify for new loans as long as they do not have more than 500 employees at any given location; (2) franchises that are approved on the SBA’s Franchise Directory; and (3) small businesses that receive financing through the Small Business Investment Company program. G��1�9� �bC�f��,�p%1]8r���oL
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9 For clarity, the June 2016 Final Rule only amended the affiliation rules with regards to the Business Loan, Disaster Loan and Surety Bond Guarantee Program. SBA Affiliation Rules for the Paycheck Protection Program and Economic Injury Disaster Loan Program The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) authorizes $349 billion in forgivable Section 7(a) Small Business Administration (“SBA”) loans under the Paycheck Protection Program, to be issued by qualified SBA lenders, as described further in our client alert . § 121.301. Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties control or has the power to control both. We summarize these considerations briefly below while noting that the law of affiliation is complex and that its nuances are found within the SBA’s interpretations of its regulations, as articulated through years of case decisions in small business size protests. © 2001–2020 Pillsbury Winthrop Shaw Pittman LLP. In the meantime, please refer to our client alerts COVID-19 Relief: Understanding SBA Loan Opportunities Under the CARES Act and COVID-19 Relief: Small Business Loan Forgiveness under the CARES Act for additional information. Since 2016, the SBA has used separate affiliation rules specifically tailored to its loan programs under 13 C.F.R. Affiliation under any of the circumstances described below is sufficient to establish affiliation for applicants for SBA’s Business Loan [and] Disaster Loan […] Programs. Affiliation determinations are significant under the PPP because the applicant and each “affiliate” is viewed as one business for purposes of calculating the number of employees. The specific SBA regulation regarding affiliation principles applicable to financial assistance programs is 13 C.F.R. - Your business must be experiencing a business loss related to COVID-19. SBA's affiliation rules confirm whether the annual receipts or number of employees of other entities need to be added to the applicant's numbers when determining size. This type of loan is open to private organizations or small business owners who have sustained an economic injury because of the declared disaster.” Impact of SBA Affiliation Rules on Eligibilty for Paycheck Protection Loans and EIDLs under the CARES Act. The SBA issued guidance with respect to the Affiliation Rules applicable to the PPP. Applicants should also understand that if their application is not approved based on an adverse size determination (e.g., too many employees based on affiliation), they can appeal the decision to the SBA’s Office of Hearings and Appeals (OHA). Section 1114 of the Act directs the SBA to pass regulations to implement the Act by April 11, 2020. Affiliation Under SBA Regulations The specific SBA regulation regarding affiliation principles applicable to financial assistance programs is 13 C.F.R. SBA is processing applications for those loans under its normal procedures, which means the affiliation rules apply to determine if an applicant is eligible. h�bbd```b``�"��H� R} �d� ����B�J0". The regulations are available. Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm’s capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. The new law waives applicability of the SBA’s affiliation rules for small businesses in NAICS industry sector 72, which is “Accommodation and Food Services” (i.e., restaurants, bars, caterers, hotels, casino hotels, B&Bs, RV parks, campgrounds). U.S. Senate Passes CARES Act, Heads to House; Would Make Available $349B in SBA Paycheck Protection Loans and $10B in Economic Injury Disaster Loan Grants To ensure compliance with these rules, all applicants for a Paycheck Protection Loan should first give careful consideration to the question of affiliation. § 121.301, promulgated in 2016. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center. Loans will be guaranteed under the PPP under the same terms, conditions and processes as other 7(a) loans, with certain changes including but not limited to: The guarantee percentage is 100 percent. - According to SBA’s guide to size and affiliation rules, when calculating the size of your business, you must include the annual receipts and employees of your domestic and for… 1091 0 obj
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§ 121.103. Pillsbury attorneys can help clients interpret the foregoing requirements and determine whether to apply for an SBA loan. (7) For SBA's Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, the bases for affiliation are set forth in § 121.702. h��{io\G��_��6z�*�0h�ښ��. It states that for both Business Loans (like the Paycheck Protection Loans) and Disaster Loans, an applicant business concern must satisfy two criteria: (1) The size of the applicant alone (without affiliates) must not exceed the applicable size standard; and. After using these rules to properly identify affiliated companies, potential borrowers must aggregate the respective employee tallies of each affiliated company to determine whether they are within the size limitation. Affiliation under any of the circumstances described below is sufficient to establish affiliation for applicants for SBA's Business Loan, Disaster Loan, and Surety Bond Programs. The Small Business Administration (SBA) is publishing this rule to rescind the regulations published on February 10, 2020, in the interim final rule (IFR) titled, ``Express Loan Programs; Affiliation Standards'' (Express IFR). 13 C.F.R. The business receiving the loan must be deemed a Small Business based on North American Industrial Classification System (NAICS) code, annual receipts, and the average number of people employed per pay period. You may also contact any of the points of contact at the bottom of this document to receive a copy of the rules. You may also contact any of the points of contact at the bottom of this document to receive a copy of the rules. Loans; Lender Match; Investment capital; Surety bonds; Disaster assistance ; Grants; Contracting. § 121.301. SBA Loans Regs: The “Bootleg” Redline of SBA Affiliation Rule §301(f) (the changes you’re not seeing online!) endstream
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COVID-19 and Economic Impact Resource Center, COVID-19 Relief: Understanding Affiliation Rules Regarding Paycheck Protection Loans, COVID-19 Relief: Understanding SBA Loan Opportunities Under the CARES Act, COVID-19 Relief: Small Business Loan Forgiveness under the CARES Act. SBA’s rules on affiliation for its programs (except SBIR, STTR, Business Loans, Disaster Loans, and Surety Bonds) are found at . The regulations are available online at http://www.ecfr.gov. %PDF-1.7
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The Summary of Comments to the 2016 version explains that this is the version where the SBA decided to move affiliation rules for Business Loans and Disaster Loans to 13 CFR 121.301 (f) in order to distinguish them from affiliation requirements for other SBA programs (e.g., government contracting). The SBA affiliation rules broadly define "control", and historically, the SBA has broadly construed its affiliation rules. What are the loan terms and conditions? As discussed in our previous alert here, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed on March 27, 2020, appropriated approximately $350 billion for forgivable Paycheck Protection Loans, which will soon be available through banks, credit unions and other SBA-approved lenders (and guaranteed by the government). 8 See Affiliation for Business Loan Programs and Surety Bond Guaranty Program, 81 Fed. According to MerchantMaverick, “ To be eligible for an Economic Injury Disaster Loan through the SBA, you’ll need to be located in a disaster declared county or a contiguous county. For purposes of determining the number of employees, each applicant is considered together with its affiliates pursuant to the SBA’s existing affiliation rules. online at Title 13 Part 121 of the Code of Federal Regulations (CFR). SBA disaster loans three step process; SBA disaster loan information index; List of states with approved SBA declarations (current as of March 21, 2020) You can register for an SBA webinar on EIDLs by browsing the SBA events page. Learn about the four tests for affiliation and how they apply to participants in the Paycheck Protection Program. Second homes and vacation properties are not eligible, although certain rental properties may qualify for an SBA business disaster loan. SBA is revising its regulations on affiliation for the Business Loan, Disaster Loan, and SBG Programs by separating and distinguishing the rules from the Agency's government contracting, business development and other programs. § 121.103. § 121.103, which are similar. It states that for both Business Loans (like the Paycheck Protection Loans) and Disaster Loans, an applicant business concern must satisfy two criteria: 0
7. Learn more about the SBA's size standards. The CARES Act states that the SBA’s affiliation rules apply regarding eligibility determinations for Paycheck Protection Loans.1 Therefore, to properly analyze whether a company is a qualifying “small business,” one must understand the SBA’s complex affiliation rules. Any business—including any business concern, 501(c)(3) nonprofit organization, veterans organization or Tribal business concern, as well as individuals who operate as sole proprietorships or independent contractors, or are self-employed—operational as of February 15, 2020 with no more than 500 employees (unless the company’s primary industry classification code, available here, allows for a greater number of employees) is eligible to apply for a Paycheck Protection Loan. By Cecilia Wang, Jenny Y. Liu, Alexander B. Ginsberg, David B. Dixon. Reg. �n���3�N�Vj���˼@�ޟI%��
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(2) The size of the applicant combined with its affiliates must not exceed the size standard designated for either the primary industry of the applicant alone or the primary industry of the applicant and its affiliates, whichever is higher. The SBA’s affiliation rules for financial assistance programs are found in 13 C.F.R. §§ 109, 115, 120-21). However, SBA Express loans carry a maximum of 50 percent guaranty and Export Express loans carry a maximum 90 percent guaranty. interim final rule. [T]he detailed affiliation standards contained in section 121.103 currently do not apply to PPP borrowers, because section 121.103(a)(8) provides that applicants in SBA’s Business Loan … By: Mark Wisniewski In response to the COVID-19 crisis, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “Act”) (P.L. This change streamlines the rules to comply with Executive Order 13563. § 121.301. 1051 0 obj
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On April 2, the SBA released the . It does not matter whether control is exercised, so long as the power to control exists. However, there are exceptions to the affiliation rules including for: o Business concerns in the Accommodation and Food Services industries with not more than SBA Office of Disaster Assistance | 1-800-659-2955 | 409 3rd St, SW. Washington, DC 20416 “Employees” include all individuals employed by the business on a full-time or part-time basis. For most 7 (a) loan programs, the SBA can guarantee up to 85 percent of loans of $150,000 or less, and up to 75 percent of loans above $150,000. SBA contact information: SBA Customer Service Center: (800) 659-2955 or email at disastercustomerservice@sba.gov This Executive Order “Improving Regulation and Regulatory Review,” provides that agencies “must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends.” (Emphasis ad… § 121.103. 13 C.F.R. An SBA disaster loan is a low-interest loan offered by the U.S. Small Business Administration to help businesses and individuals to recover from officially declared disasters. The SBA recognizes numerous ways in which an individual or company may be deemed to control—and, thus, be affiliated with—another company. Notably, the CARES Act waives the SBA’s affiliation rules for determining PPP program eligibility for certain specific categories of businesses, including businesses in the Accommodation and Food Services Industry with 500 or fewer employees, businesses operating as a franchise that are assigned a franchise identifier code in the SBA Franchise Directory (available here), and businesses … For these businesses, the affiliation rules are waived for loans issued before June 30, 2020. These and any accompanying materials are not legal advice, are not a complete summary of the subject matter, and are subject to the terms of use found at: https://www.pillsburylaw.com/en/terms-of-use.html. For this rule, the Business Loan Programs consist of the 7(a) Loan Program, the Microloan Program, the Intermediary Lending Pilot Program, and the Development Company Loan Program (“504 Loan Program”). SBA intends to promptly issue additional guidance with regard to the applicability of affiliation rules at 13 CFR §§ 121.103 and 121.301 to PPP loans. April 5, 2020. § 121.301 apply to financial assistance programs of the type contained in the CARES Act. CARES ACT: UNDERSTANDING SBA'S LOAN ELIGIBILITY REQUIREMENTS, INCLUDING AFFILIATION RULES Publication CARES ACT: UNDERSTANDING SBA'S LOAN ELIGIBILITY REQUIREMENTS, INCLUDING AFFILIATION RULES Authors Joshua A. Mullen, Donald Jeffrey Wagner March 30, 2020 On Friday, March 27, 2020, President Donald J. Trump signed into law the Coronavirus Aid, &��I.� � �!H2� ��A� ��Dj��H�w 5! Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL), in addition to other Small Business Administration (SBA) efforts involving the Emergency Advance: SBA Express Bridge Loans and SBA Debt Relief. SBA Affiliation Rules Generally An applicant to the PPP generally must have 500 or fewer employees and must satisfy certain other eligibility requirements. 7(a) SBA Loans: The following business concerns are excluded: – Business concerns that appear small but do not meet the requirements due to “affiliation” rules set out by the SBA. endstream
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There are also certain existing exceptions to SBA affiliation rules which apply to the PPP program included in 13 CFR 121.103(b), for example, businesses owned and controlled by Indian tribes. 1. Outside of a few exceptions listed in the CARES Act and noted below, affiliation must be considered when evaluating eligibility for SBA loans. We note that for purposes of the SBIR … Historically, disasters have been declared for catastrophic events like hurricanes, earthquakes and floods, and are limited to a state or territory. We will continue to monitor the forthcoming regulations. We recommend that you obtain separate legal advice. 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