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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 121
Docket Number SBA-2020-0030
RIN 3245-AH44
Business Loan Program Temporary Changes; Paycheck Protection Program – Treatment
of Entities with Foreign Affiliates
AGENCY: U. S. Small Business Administration.
ACTION: Interim final rule.
SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA) posted an
interim final rule announcing the implementation of the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act). The CARES Act temporarily adds a new program, titled the
“Paycheck Protection Program,” to the SBA’s 7(a) Loan Program. The CARES Act also
provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under
the Paycheck Protection Program (PPP). The PPP is intended to provide economic relief to
small businesses nationwide adversely impacted by the Coronavirus Disease 2019 (COVID-19).
SBA posted additional interim final rules on April 3, 2020, April 14, 2020, April 24, 2020, April
28, 2020, April 30, 2020, May 5, 2020, May 8, 2020, May 13, 2020, and May 14, 2020, and the
Department of the Treasury posted an additional interim final rule on April 28, 2020. This
interim final rule supplements the previously posted interim final rules by providing guidance on
additional eligibility requirements related to entities with foreign affiliates, and requests public
comment.
DATES: Effective date: This rule is effective [INSERT DATE OF PUBLICATION IN THE
FEDERAL REGISTER].
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Applicability date: This interim final rule applies to applications submitted under the Paycheck
Protection Program through June 30, 2020, or until funds made available for this purpose are
exhausted.
Comment date: Comments must be received on or before [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL REGISTER].
ADDRESSES: You may submit comments, identified by number SBA-2020-0030 through the
Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting
comments. SBA will post all comments on www.regulations.gov. If you wish to submit
confidential business information (CBI) as defined in the User Notice at www.regulations.gov,
please send an email to ppp-ifr@sba.gov. Highlight the information that you consider to be CBI
and explain why you believe SBA should hold this information as confidential. SBA will review
the information and make the final determination whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-572-0502,
or the local SBA Field Office; the list of offices can be found at https://www.sba.gov/tools/local-
assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019
(COVID-19) pandemic of sufficient severity and magnitude to warrant an emergency declaration
for all States, territories, and the District of Columbia. With the COVID-19 emergency, many
small businesses nationwide are experiencing economic hardship as a direct result of the Federal,
State, tribal, and local public health measures that are being taken to minimize the public’s
exposure to the virus. These measures, some of which are government-mandated, are being
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implemented nationwide and include the closures of restaurants, bars, and gyms. In addition,
based on the advice of public health officials, other measures, such as keeping a safe distance
from others or even stay-at-home orders, are being implemented, resulting in a dramatic decrease
in economic activity as the public avoids malls, retail stores, and other businesses.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic
Security Act (the CARES Act) (Pub. L. 116-136) to provide emergency assistance and health
care response for individuals, families, and businesses affected by the coronavirus pandemic.
The Small Business Administration (SBA) received funding and authority through the CARES
Act to modify existing loan programs and establish a new loan program to assist small
businesses nationwide adversely impacted by the COVID-19 emergency. Section 1102 of the
CARES Act temporarily permits SBA to guarantee 100 percent of 7(a) loans under a new
program titled the “Paycheck Protection Program.” Section 1106 of the CARES Act provides
for forgiveness of up to the full principal amount of qualifying loans guaranteed under the
Paycheck Protection Program (PPP). On April 24, 2020, the President signed the Paycheck
Protection Program and Health Care Enhancement Act (Pub. L. 116-139), which provided
additional funding and authority for the PPP.
Under the CARES Act, an entity is eligible for a PPP loan if it is (1) a small business
concern, or (2) a business concern, nonprofit organization described in section 501(c)(3) of the
Internal Revenue Code, veterans organization described in section 501(c)(19) of the Internal
Revenue Code, or Tribal business concern described in section 31(b)(2)(C) of the Small Business
Act that employs not more than the greater of 500 employees, or, if applicable, SBA’s employee-
based size standard for the industry in which the entity operates. Under existing SBA
regulations, an entity is generally considered together with its affiliates for purposes of
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determining the entity’s eligibility for SBA loans. See 13 C.F.R. 121.301. SBA issued an
interim final rule on affiliation (posted April 4, 2020) stating that PPP applicants are subject to
the affiliation rules set forth in 13 C.F.R. 121.301. See 85 FR 20817 (April 15, 2020). Those
rules deem entities to be affiliates based on factors including stock ownership, overlapping
management, and identity of interest. Of relevance here, SBA’s affiliation rules provide that in
determining an entity’s number of employees, employees of the entity “and all of its domestic
and foreign affiliates” are included. As a result, in most cases, a borrower is considered together
with its U.S. and foreign affiliates for purposes of determining eligibility for the PPP. Based on
that methodology, the borrower application form (SBA Form 2483), which all applicants must
complete and submit, includes a certification that the applicant “employs no more than the
greater of 500 or employees or, if applicable, the size standard in number of employees
established by the SBA in 13 C.F.R. 121.201 for the Applicant’s industry.” To provide further
clarification of this methodology, SBA issued guidance on May 5, 2020 (FAQ 44) stating that an
applicant must count all of its employees and the employees of its U.S and foreign affiliates,
absent a waiver of or an exception to the affiliation rules.
Some market participants have indicated that there may be uncertainty regarding whether
PPP applicants must include employees of foreign affiliates in their employee counts, because
SBA has previously issued guidance stating that an entity is eligible for a PPP loan if it has 500
or fewer employees whose principal place of residence is in the United States. See 85 FR 20811,
20812 (April 15, 2020). As described above, the generally applicable 500-employee size
standard is subject to the application of SBA’s affiliation rules, as well as numerous other
eligibility requirements. See, e.g., 13 C.F.R. 120.110 (listing 18 types of ineligible businesses);
SBA Form 2483 (including mandatory applicant representations regarding defaults on previous
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government loans or guarantees, federal suspension or debarment, and criminal backgrounds).
The reference in SBA guidance to employees whose principal place of residence is in the United
States is relevant to a PPP applicant’s calculation of payroll for purposes of determining the PPP
loan amount and to the calculation of loan forgiveness. The fact that an applicant might be
eligible for a PPP loan if it has 500 or fewer U.S. employees does not mean that the applicant is
not also subject to the other requirements applicable to the PPP. Instead, an applicant is eligible
for a PPP loan only if it meets all applicable eligibility criteria. If an applicant, together with its
domestic and foreign affiliates, does not meet the 500-employee or other applicable PPP size
standard, it is not eligible for a PPP loan.
II. Comments and Immediate Effective Date
The intent of the Act is that SBA provide relief to America’s small businesses expeditiously.
This intent, along with the dramatic decrease in economic activity nationwide, provides good
cause for SBA to dispense with the 30-day delayed effective date provided in the Administrative
Procedure Act. Specifically, it is critical to meet lenders’ and borrowers’ need for clarity
concerning program requirements as rapidly as possible because the last day eligible borrowers
can apply for and receive a loan is June 30, 2020.
This interim final rule supplements previous regulations and guidance on an important,
discrete issue. The immediate effective date of this interim final rule will benefit lenders so that
they can swiftly close and disburse loans to small businesses. This interim final rule is effective
without advance notice and public comment because section 1114 of the Act authorizes SBA to
issue regulations to implement Title I of the Act without regard to notice requirements. This rule
is being issued to allow for immediate implementation of this program. Although this interim
final rule is effective immediately, comments are solicited from interested members of the public
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on all aspects of the interim final rule, including section III below. These comments must be
submitted on or before [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER]. SBA will consider these comments and the need for making any
revisions as a result of these comments.
III. Paycheck Protection Program Additional Eligibility Criteria
Overview
The CARES Act was enacted to provide immediate assistance to individuals, families, and
organizations affected by the COVID-19 emergency. Among the provisions contained in the
CARES Act are provisions authorizing SBA to temporarily guarantee loans under the PPP.
Loans under the PPP will be 100 percent guaranteed by SBA, and the full principal amount of
the loans and any accrued interest may qualify for loan forgiveness. Additional information
about the PPP is available in interim final rules published by SBA and the Department of the
Treasury in the Federal Register (85 FR 20811, 85 FR 20817, 85 FR 21747, 85 FR 23450, 85 FR
23917, 85 FR 26321, 85 FR 26324, and 85 FR 27287) and posted on May 8, 2020, May 13,
2020, and May 14, 2020 (collectively, the PPP Interim Final Rules).
1. Treatment of Foreign Affiliates
Are employees of foreign affiliates included for purposes of determining whether a PPP
borrower has more than 500 employees?
Yes. The CARES Act specifies that an entity is eligible for a PPP loan only if it is (1) a
small business concern, or (2) a business concern, nonprofit organization described in
section 501(c)(3) of the Internal Revenue Code, veterans organization described in
section 501(c)(19) of the Internal Revenue Code, or Tribal business concern described in
section 31(b)(2)(C) of the Small Business Act that employs not more than the greater of
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500 employees, or, if applicable, SBA’s employee-based size standard for the industry in
which the entity operates. SBA’s affiliation regulations provide that to determine a
concern’s size, employees of the concern “and all of its domestic and foreign affiliates”
are included. 13 C.F.R. 121.301(f). Therefore, to calculate the number of employees of
an entity for purposes of determining eligibility for the PPP, an entity must include all
employees of its domestic and foreign affiliates, except in those limited circumstances
where the affiliation rules expressly do not apply to the entity.1 Any entity that, together
with its domestic and foreign affiliates, does not meet the 500-employee or other
applicable PPP size standard is therefore ineligible for a PPP loan.
However, as an exercise of enforcement discretion due to reasonable borrower confusion
based on SBA guidance (which was later resolved through a clarifying FAQ on May 5,
2020), SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020
to be ineligible based on the borrower’s exclusion of non-U.S employees from the
borrower’s calculation of its employee headcount if the borrower (together with its
affiliates)2 had no more than 500 employees whose principal place of residence is in the
United States. Such borrowers shall not be deemed to have made an inaccurate
certification of eligibility solely on that basis. Under no circumstances may PPP funds be
used to support non-U.S. workers or operations.
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Section 7(a)(36)(D)(iv) of the Small Business Act (15 U.S.C. 636(a)(36)(D)(iv), as added by the CARES Act,
waives SBA’s affiliation rules for (1) any business concern with not more than 500 employees that, as of the date on
which the loan is disbursed, is assigned a North American Industry Classification System code beginning with 72;
(2) any business concern operating as a franchise that is assigned a franchise identifier code by the Administration;
and (3) any business concern that receives financial assistance from a company licensed under section 301 of the
Small Business Investment Act of 1958 (15 U.S.C. 681). SBA also applies affiliation exceptions to certain
categories of entities. 13 CFR 121.103(b).
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For purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final
rule on affiliates, 85 FR 20817 (April 15, 2020). SBA’s affiliation exceptions in 13 CFR 121.103(b) apply to the
PPP.
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2. Additional Information
SBA may provide further guidance, if needed, through SBA notices that will be posted on
SBA’s website at www.sba.gov. Questions on the Paycheck Protection Program may be directed
to the Lender Relations Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance with Executive Orders 12866, 12988, 13132, 13563, and 13771, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C.
601-612).
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the purposes of Executive Orders
12866 and 13563, and is considered a major rule under the Congressional Review Act. SBA,
however, is proceeding under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate the current economic conditions
arising from the COVID-19 emergency. This rule’s designation under Executive Order 13771
will be informed by public comment.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance with the standards set forth
in section 3(a) and 3(b)(2) of Executive Order 12988, to minimize litigation, eliminate
ambiguity, and reduce burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule will not have substantial direct effects on the States, on the
relationship between the National Government and the States, or on the distribution of power and
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responsibilities among the various layers of government. Therefore, SBA has determined that
this rule has no federalism implications warranting preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will not impose new or modify existing recordkeeping or
reporting requirements under the Paperwork Reduction Act.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when an agency issues a
proposed rule, or a final rule pursuant to section 553(b) of the APA or another law, the agency
must prepare a regulatory flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically, the RFA normally
requires agencies to describe the impact of a rulemaking on small entities by providing a
regulatory impact analysis. Such analysis must address the consideration of regulatory options
that would lessen the economic effect of the rule on small entities. The RFA defines a “small
entity” as (1) a proprietary firm meeting the size standards of the Small Business Administration
(SBA); (2) a nonprofit organization that is not dominant in its field; or (3) a small government
jurisdiction with a population of less than 50,000. 5 U.S.C. 601(3)–(6). Except for such small
government jurisdictions, neither State nor local governments are “small entities.” Similarly, for
purposes of the RFA, individual persons are not small entities. The requirement to conduct a
regulatory impact analysis does not apply if the head of the agency “certifies that the rule will
not, if promulgated, have a significant economic impact on a substantial number of small
entities.” 5 U.S.C. 605(b). The agency must, however, publish the certification in the Federal
Register at the time of publication of the rule, “along with a statement providing the factual basis
for such certification.” If the agency head has not waived the requirements for a regulatory
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flexibility analysis in accordance with the RFA’s waiver provision, and no other RFA exception
applies, the agency must prepare the regulatory flexibility analysis and publish it in the Federal
Register at the time of promulgation or, if the rule is promulgated in response to an emergency
that makes timely compliance impracticable, within 180 days of publication of the final rule. 5
U.S.C. 604(a), 608(b). Rules that are exempt from notice and comment are also exempt from the
RFA requirements, including conducting a regulatory flexibility analysis, when among other
things the agency for good cause finds that notice and public procedure are impracticable,
unnecessary, or contrary to the public interest. SBA Office of Advocacy Guide: How to Comply
with the Regulatory Flexibility Act, Ch.1. p.9. Accordingly, SBA is not required to conduct a
regulatory flexibility analysis.
Jovita Carranza,
Administrator.
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