sba affiliation rules disaster loan

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, § 121.103. The regulations are available. 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. 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. The SBA affiliation rules broadly define "control", and historically, the SBA has broadly construed its affiliation rules. 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. 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”). 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. This type of loan is open to private organizations or small business owners who have sustained an economic injury because of the declared disaster.” 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. 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 . 7. § 121.103, which are similar. 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’s rules on affiliation for its programs (except SBIR and STTR) are found at 13 C.F.R. 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. To ensure compliance with these rules, all applicants for a Paycheck Protection Loan should first give careful consideration to the question of affiliation. (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. We believe that reference to be in error as SBA regulations state that affiliation rules found in 13 C.F.R. online at Title 13 Part 121 of the Code of Federal Regulations (CFR). The SBA’s affiliation rules for financial assistance programs are found in 13 C.F.R. 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). SBA Loans Regs: The “Bootleg” Redline of SBA Affiliation Rule §301(f) (the changes you’re not seeing online!) 1. You may also contact any of the points of contact at the bottom of this document to receive a copy of the rules. endstream endobj 1052 0 obj <>/Metadata 87 0 R/Outlines 226 0 R/Pages 1049 0 R/StructTreeRoot 332 0 R/Type/Catalog/ViewerPreferences 1076 0 R>> endobj 1053 0 obj <>/MediaBox[0 0 612 792]/Parent 1049 0 R/Resources<>/Font<>/ProcSet[/PDF/Text/ImageC]/XObject<>>>/Rotate 0/StructParents 179/Tabs/S/Type/Page>> endobj 1054 0 obj <>stream - 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… Pillsbury attorneys can help clients interpret the foregoing requirements and determine whether to apply for an SBA loan. § 121.103. 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. Learn about the four tests for affiliation and how they apply to participants in the Paycheck Protection Program. § 121.301(f)(8). 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. What are the loan terms and conditions? § 121.103. 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). Second homes and vacation properties are not eligible, although certain rental properties may qualify for an SBA business disaster loan. 1051 0 obj <> endobj Historically, disasters have been declared for catastrophic events like hurricanes, earthquakes and floods, and are limited to a state or territory. (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. SBA is processing applications for those loans under its normal procedures, which means the affiliation rules apply to determine if an applicant is eligible. § 121.301. We note that for purposes of the SBIR … 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 SBA Office of Disaster Assistance | 1-800-659-2955 | 409 3rd St, SW. Washington, DC 20416 1091 0 obj <>stream Affiliation Under SBA Regulations The specific SBA regulation regarding affiliation principles applicable to financial assistance programs is 13 C.F.R. 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. This change streamlines the rules to comply with Executive Order 13563. § 121.301. The affiliation rules described above are waived under the PPP program for any of the following 3 reasons: (1) any business concern with less than 500 employees that, as of the date on which the loan is funded, is assigned a North American Industry Classification System (NAICS) code beginning with the digits 72; (2) any business concern operating as a franchise that is assigned a franchise identifier code by the U.S. SBA; … It does not matter whether control is exercised, so long as the power to control exists. %PDF-1.7 %���� It states that for both Business Loans (like the Paycheck Protection Loans) and Disaster Loans, an applicant business concern must satisfy two criteria: 41423 (June 27, 2016) (to be codified at 13 C.F.R. Loans; Lender Match; Investment capital; Surety bonds; Disaster assistance ; Grants; Contracting. &��I.� � �!H2� ��A� ��Dj��H�w 5! G��1�9� �bC�f��,�p%1]8r���oL N)[מ�^�c�M���X���spJ0��9�z��&OSX�eN:c����YiΜ�~:GoO�P���963v'P* �&v�HP��f����y �?�M�ɜ��MB�O-*���a�Y+��:��@�&�?l��� %%EOF 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. April 5, 2020. SBA’s rules on affiliation for its programs (except SBIR, STTR, Business Loans, Disaster Loans, and Surety Bonds) are found at . Impact of SBA Affiliation Rules on Eligibilty for Paycheck Protection Loans and EIDLs under the CARES Act. 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. 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. 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 … h�bbd```b``�"��H� R} �d� ����B�J0". 3Note that the OHA case law discussed here is in the context of the SBA’s general affiliation rules under 13 C.F.R. 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. 1074 0 obj <>/Filter/FlateDecode/ID[<4D99936DD0A16849868D82B475185086><33B5A7AFF8D20748BE1C4CC8FC8990AC>]/Index[1051 41]/Info 1050 0 R/Length 114/Prev 420493/Root 1052 0 R/Size 1092/Type/XRef/W[1 3 1]>>stream 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. 0 The specific SBA regulation regarding affiliation principles applicable to financial assistance programs is 13 C.F.R. h�b```�s�bB cc`a��������� V���0��n��} 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. 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. 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. 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. 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). Outside of a few exceptions listed in the CARES Act and noted below, affiliation must be considered when evaluating eligibility for SBA loans. 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… §§ 109, 115, 120-21). 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. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center. You may also contact any of the points of contact at the bottom of this document to receive a copy of the rules. h��{io\G��_��6z�*�0h�ښ��. Since 2016, the SBA has used separate affiliation rules specifically tailored to its loan programs under 13 C.F.R. The CARES Act refers to the affiliation rules of 13 C.F.R. We will continue to monitor the forthcoming regulations. § 121.301 apply to financial assistance programs of the type contained in the CARES Act. For these businesses, the affiliation rules are waived for loans issued before June 30, 2020. However, SBA Express loans carry a maximum of 50 percent guaranty and Export Express loans carry a maximum 90 percent guaranty. (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. Learn more about the SBA's size standards. �n���3�N�Vj���˼@�ޟI%�� ��M�Qp�����O�4�ی��?��Td{�L�6�G@�3�ޞ p��3Ȏݶ�E�d����ͼ8::::�L;@���``� 1AL�0��\" �@*@���ژ!���l`�I9j(D7�����+A(&�,G�Z0���k���@Z���"��!LL�L�L�4O3�1�b�� z�����G��x慰0 ���0�d�g�2�������������n2Ng�i��K�>lb��4�}H�1�)iF��xJ�g`S��������mȡ�l�}�� s��� Section 1114 of the Act directs the SBA to pass regulations to implement the Act by April 11, 2020. On April 2, the SBA released the . Affiliation under any of the circumstances described below is sufficient to establish affiliation for applicants for SBA’s Business Loan [and] Disaster Loan […] Programs. Homeowners and renters may also be able to borrow up to $40,000 to replace damaged or destroyed personal … § 121.301, promulgated in 2016. 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. 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. 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. SBA Affiliation Rules Generally An applicant to the PPP generally must have 500 or fewer employees and must satisfy certain other eligibility requirements. 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. 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). 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. We recommend that you obtain separate legal advice. Are waived for loans issued before June 30, 2020 with Executive Order 13563 be... 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