The U.S. Small Business Administration (SBA) released a new Interim Final Rule Monday creating a new safe harbor for applicants with foreign affiliates whose eligibility certifications were technically incorrect. Specifically, it states that while all employees, both foreign and domestic, of both a business and its affiliates count for purposes of size limitations of the PPP, borrowers are entitled to rely on prior SBA guidance that businesses were eligible for PPP loans if they had 500 or fewer employees with a primary residence in the U.S. While the SBA had previously clarified the eligibility criteria in a non-binding FAQ on May 5, 2020 (see FAQ #44), the Interim Final Rule makes clear that “due to reasonable borrower confusion based on SBA guidance,” SBA was creating a safe harbor for applicants who relied on the information published prior to the FAQ.
The safe harbor requires that a borrower (1) applied for a loan before May 5, 2020 (2) excluded non-U.S. employees from the employee count, and (3) had 500 or fewer employees whose principal place of residence was in the U.S. If the borrower meets all three criteria, it will be deemed not to have violated the certification of eligibility. However, PPP funds cannot under any circumstances be used to support non-US based employees or operations. Documentation of the use of PPP funds is critical for all borrowers, but those with non-US operations must be particularly careful to make sure to document how all PPP funds are used and that they were used in compliance with the PPP regulations.
The interim final rule also incorporated the requirements from FAQ #44 and the SBA’s general rule regarding foreign affiliates for size determinations, that when calculating size, both the applicant’s employees and “all of its domestic and foreign affiliates” are included. The IFR makes clear that proper calculation of eligibility for the PPP requires that an entity include all employees of its domestic and foreign affiliates, except in those limited circumstances where the affiliation rules expressly do not apply.