Updates to the U.S. Small Business Administration Affiliation Rules

April 6, 2020

Since the initial release of the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) Application Form on March 31, 2020, both borrowers and lenders have faced many unanswered questions regarding the completion of certain aspects of this application and its corresponding bank underwriting requirements.

Subsequent to the initial Application release, there have been numerous updates provided by the SBA which were intended to clarify some of these unanswered questions. In many cases the guidance that was intended to address uncertainties around the Application only added to the confusion of borrowers and their banks. This was further complicated when in the early morning hours of April 3, 2020, just before banks were scheduled to “go live” on application processing, an updated Application Form was published. Any bank that may have been ready to launch their online PPP loan application systems faced the need to modify their systems to respond to this last minute development.

Initially, the very favorable PPP loan terms were expected to be attractive to small businesses owned by Private Equity and Venture Capital Funds. However, the SBA’s broad affiliation rules, in their current state, likely render many of these companies ineligible to receive PPP funding. The on-going program updates continued with the most recent SBA issuance of an Interim Final Rule (“IFR”) on affiliation on April 4, 2020, dealing primarily with faith-based organizations. Many speculated the IFR would relax the affiliation rules but that was not the case. Click here to review current affiliation rules. These rules continue to have a common ownership rule, a common management rule and an identity of interest rule.

The affiliation rules are just one example of the underlying complexities that are not readily apparent after a review of the loan application. Other complexities exist around factors such as:

  • Size exceptions that are permitted under certain NAISC code designations; and
  • How to calculate the Average Monthly Payroll for determining the maximum loan amount.

Cherry Bekaert will continue to monitor developments around COVID-19 Stimulus activities. Refer to our COVID-19 Guidance Center to stay up to date on our most recent guidance. For assistance with completion of your PPP application or to obtain access to CB advisors who can address questions applicable to your situation please contact