In the newest evolution of Paycheck Protection Program (PPP) guidance, the Small Business Administration (SBA) has provided commonly owned, affiliated entities that have not yet received a PPP loan with additional limitations. In light of the high demand for PPP loans, the SBA has placed a $20 million cap on the maximum aggregate loan amount that can be received by a single “corporate” group. For purposes of applying this cap, a business is considered part of a corporate group if one or more businesses are majority owned, directly or indirectly, by a common parent, regardless of whether the business entity is a corporation, LLC, or other entity.
This limit is effective immediately with respect to any loan that has not yet been fully disbursed as of April 30, 2020. For loans that have been partially disbursed, the limit applies to additional disbursements that would cause the total amount of the loans to a corporate group to exceed the $20 million cap.
The SBA has placed the responsibility on the borrower to ensure the corporate group remains below the limit. A borrower should notify its lender if the corporate group has applied for or received a PPP loan in an amount above the permitted cap. The borrower is required to withdraw or cancel any pending loan application or approved loan that would cause the borrower to be in non-compliance with the new rule. A borrower’s failure to comply with this new rule will be regarded as a use of PPP funds for an unauthorized purpose and will result in a penalty, including, but not limited to, the borrower being ineligible for forgiveness.
It is important to note the existing SBA affiliation rules, or waiver of those rules, used to determine eligibility under the PPP continue to remain in effect, notwithstanding this special rule for commonly owned members of a corporate group. Additionally, businesses will be subject to the $20 million limitation even if they are otherwise eligible for the waiver of affiliation rules under the CARES Act or not considered to be affiliates under the SBA’s affiliation rules.
If you have any questions regarding the content of this alert, please contact Danielle Katz, associate, at dkatz@barclaydamon.com; Samantha Podlas, associate, at spodlas@barclaydamon.com; Roger Cominsky, Financial Institutions & Lending Practice Area chair, at rcominsky@barclaydamon.com; or another member of the firm’s Financial Institutions & Lending Practice Area.
We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. You can reach our COVID-19 Response Team at COVID-19ResponseTeam@barclaydamon.com.