The SBA Changes the PPP Eligibility Ground Rules – Providing New Calculation of Employee Count for Affiliates With Questions Remaining on Applicable Headcount for Applicants

On May 18, 2020, the Small Business Administration (SBA) released a new interim final rule addressing the confusion raised by the SBA’s FAQ 44 on how PPP applicants are to count employees of foreign and U.S. affiliates for purposes of determining eligibility against the 500 or fewer employee size standard provided for in the CARES Act. 

The SBA posted an interim final rule on April 3, 2020 that stated that applicants are generally eligible for the PPP if the applicant, combined with its affiliates, has 500 or fewer employees whose principal place of residence is in the United States. In light of this and other consistent statements, many calculated their eligibility based on whether the applicant alone (i.e., if it had no affiliates) or the applicant and any affiliates (whether domestic and/or foreign) had 500 or fewer employees whose principal place of residence is in the United States. As we previously noted, this understanding was called into question when the SBA posted FAQ 44 on May 5, 2020, stating that “an applicant must count all of its employees and the employees of its U.S. and foreign affiliates.”  

Now in this new interim final rule, the SBA provides that PPP applicants 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, to determine eligibility against a 500-employee or other applicable PPP size standard. Read in conjunction with FAQ 44, any entity that has yet to submit its PPP application would be well-advised to count all of its own employees as well as all of the employees of its U.S. and foreign affiliates when determining its eligibility against a 500-employee or other applicable PPP size standard.

For those applicants who submitted PPP applications prior to May 5, 2020 in reliance on prior guidance, there is a silver lining. The SBA has stated that it will not find any entity that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the exclusion of non-U.S. employees from the applicant’s calculation of its employee headcount if the applicant, together with its affiliates, had no more than 500 employees whose principal place of residence is in the United States. Per the SBA, “[s]uch borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis.” (The SBA has reiterated that under no circumstances may PPP funds be used to support non-U.S. workers or operations.) 

What this new interim final rule does not expressly address is what headcount methodology applies for an applicant that has no affiliates—leaving open the question of whether such an applicant by itself is allowed to count merely its employees whose principal place of residence is in the United States or whether it must count all of its employees. Crowell & Moring will continue to monitor and provide updates regarding developments in the PPP.