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To provide clarity, the U.S. Small Business Administration (SBA) has issued guidance on how affiliation rules apply to businesses with respect to the Paycheck Protection Program.
For purposes of the determining the number of employees of an applicant to the Paycheck Protection Program, the applicant is considered together with its affiliates. The SBA has identified four tests that they will rely upon to determine affiliates.
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 controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists.
Any of the circumstances described below is sufficient to establish that affiliation exists:
Where SBA determines that interests should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be one are in fact separate.
SBA notes that a religious exemption exists. The relationship of a faith-based organization to another organization is not considered an affiliation with the other organization if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.
The below information was also included in SBA's guidance; however, we believe that there is a typographical error:
"Waiver. The affiliation rules described above are waived 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 SBA; 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)."
Based on the language in the law and the regulation, we believe that the bold item above should read "with not more than 500 employees per physical location."
We are continuing to monitor rules and guidance closely and will post updates as they become available. If you have questions, please reach out to your Delap advisor.