[Federal Register Volume 85, Number 99 (Thursday, May 21, 2020)]
[Rules and Regulations]
[Pages 30835-30837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10967]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 121
[Docket Number SBA-2020-0030]
RIN 3245-AH44
Business Loan Program Temporary Changes; Paycheck Protection
Program--Treatment of Entities With Foreign Affiliates
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule.
-----------------------------------------------------------------------
SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA)
posted an interim final rule announcing the implementation of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The
CARES Act temporarily adds a new program, titled the ``Paycheck
Protection Program,'' to the SBA's 7(a) Loan Program. The CARES Act
also provides for forgiveness of up to the full principal amount of
qualifying loans guaranteed under the Paycheck Protection Program
(PPP). The PPP is intended to provide economic relief to small
businesses nationwide adversely impacted by the Coronavirus Disease
2019 (COVID-19). SBA posted additional interim final rules on April 3,
2020, April 14, 2020, April 24, 2020, April 28, 2020, April 30, 2020,
May 5, 2020, May 8, 2020, May 13, 2020, and May 14, 2020, and the
Department of the Treasury posted an additional interim final rule on
April 28, 2020. This interim final rule supplements the previously
posted interim final rules by providing guidance on additional
eligibility requirements related to entities with foreign affiliates,
and requests public comment.
DATES:
Effective date: This rule is effective May 21, 2020.
Applicability date: This interim final rule applies to applications
submitted under the Paycheck Protection Program through June 30, 2020,
or until funds made available for this purpose are exhausted.
Comment date: Comments must be received on or before June 22, 2020.
ADDRESSES: You may submit comments, identified by number SBA-2020-0030
through the Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. SBA will post all
comments on www.regulations.gov. If you wish to submit confidential
business information (CBI) as defined in the User Notice at
www.regulations.gov, please send an email to [email protected]. Highlight
the information that you consider to be CBI and explain why you believe
SBA should hold this information as confidential. SBA will review the
information and make the final determination whether it will publish
the information.
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-
572-0502, or the local SBA Field Office; the list of offices can be
found at https://www.sba.gov/tools/local-assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump declared the ongoing Coronavirus
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude
to warrant an emergency declaration for all States, territories, and
the District of Columbia. With the COVID-19 emergency, many small
businesses nationwide are experiencing economic hardship as a direct
result of the Federal, State, tribal, and local public health measures
that are being taken to minimize the public's exposure to the virus.
These measures, some of which are government-mandated, are being
implemented nationwide and include the closures of restaurants, bars,
and gyms. In addition, based on the advice of public health officials,
other measures, such as keeping a safe distance from others or even
stay-at-home orders, are being implemented, resulting in a dramatic
decrease in economic activity as the public avoids malls, retail
stores, and other businesses.
On March 27, 2020, the President signed the Coronavirus Aid,
Relief, and Economic Security Act (the CARES Act) (Pub. L. 116-136) to
provide emergency assistance and health care response for individuals,
families, and businesses affected by the coronavirus pandemic. The
Small Business Administration (SBA) received funding and authority
through the CARES Act to modify existing loan programs and establish a
new loan program to assist small businesses nationwide adversely
impacted by the COVID-19 emergency. Section 1102 of the CARES Act
temporarily permits SBA to guarantee 100 percent of 7(a) loans under a
new program titled the ``Paycheck Protection Program.'' Section 1106 of
the CARES Act provides for forgiveness of up to the full principal
amount of qualifying loans guaranteed under the Paycheck Protection
Program (PPP). On April 24, 2020, the President signed the Paycheck
Protection Program and Health Care Enhancement Act (Pub. L. 116-139),
[[Page 30836]]
which provided additional funding and authority for the PPP.
Under the CARES Act, an entity is eligible for a PPP loan if it is
(1) a small business concern, or (2) a business concern, nonprofit
organization described in section 501(c)(3) of the Internal Revenue
Code, veterans organization described in section 501(c)(19) of the
Internal Revenue Code, or Tribal business concern described in section
31(b)(2)(C) of the Small Business Act that employs not more than the
greater of 500 employees, or, if applicable, SBA's employee-based size
standard for the industry in which the entity operates. Under existing
SBA regulations, an entity is generally considered together with its
affiliates for purposes of determining the entity's eligibility for SBA
loans. See 13 CFR 121.301. SBA issued an interim final rule on
affiliation (posted April 4, 2020) stating that PPP applicants are
subject to the affiliation rules set forth in 13 CFR 121.301. See 85 FR
20817 (April 15, 2020). Those rules deem entities to be affiliates
based on factors including stock ownership, overlapping management, and
identity of interest. Of relevance here, SBA's affiliation rules
provide that in determining an entity's number of employees, employees
of the entity ``and all of its domestic and foreign affiliates'' are
included. As a result, in most cases, a borrower is considered together
with its U.S. and foreign affiliates for purposes of determining
eligibility for the PPP. Based on that methodology, the borrower
application form (SBA Form 2483), which all applicants must complete
and submit, includes a certification that the applicant ``employs no
more than the greater of 500 or employees or, if applicable, the size
standard in number of employees established by the SBA in 13 CFR
121.201 for the Applicant's industry.'' To provide further
clarification of this methodology, SBA issued guidance on May 5, 2020
(FAQ 44) stating that an applicant must count all of its employees and
the employees of its U.S. and foreign affiliates, absent a waiver of or
an exception to the affiliation rules.
Some market participants have indicated that there may be
uncertainty regarding whether PPP applicants must include employees of
foreign affiliates in their employee counts, because SBA has previously
issued guidance stating that an entity is eligible for a PPP loan if it
has 500 or fewer employees whose principal place of residence is in the
United States. See 85 FR 20811, 20812 (April 15, 2020). As described
above, the generally applicable 500-employee size standard is subject
to the application of SBA's affiliation rules, as well as numerous
other eligibility requirements. See, e.g., 13 CFR 120.110 (listing 18
types of ineligible businesses); SBA Form 2483 (including mandatory
applicant representations regarding defaults on previous government
loans or guarantees, Federal suspension or debarment, and criminal
backgrounds). The reference in SBA guidance to employees whose
principal place of residence is in the United States is relevant to a
PPP applicant's calculation of payroll for purposes of determining the
PPP loan amount and to the calculation of loan forgiveness. The fact
that an applicant might be eligible for a PPP loan if it has 500 or
fewer U.S. employees does not mean that the applicant is not also
subject to the other requirements applicable to the PPP. Instead, an
applicant is eligible for a PPP loan only if it meets all applicable
eligibility criteria. If an applicant, together with its domestic and
foreign affiliates, does not meet the 500-employee or other applicable
PPP size standard, it is not eligible for a PPP loan.
II. Comments and Immediate Effective Date
The intent of the Act is that SBA provide relief to America's small
businesses expeditiously. This intent, along with the dramatic decrease
in economic activity nationwide, provides good cause for SBA to
dispense with the 30-day delayed effective date provided in the
Administrative Procedure Act. Specifically, it is critical to meet
lenders' and borrowers' need for clarity concerning program
requirements as rapidly as possible because the last day eligible
borrowers can apply for and receive a loan is June 30, 2020.
This interim final rule supplements previous regulations and
guidance on an important, discrete issue. The immediate effective date
of this interim final rule will benefit lenders so that they can
swiftly close and disburse loans to small businesses. This interim
final rule is effective without advance notice and public comment
because section 1114 of the Act authorizes SBA to issue regulations to
implement Title I of the Act without regard to notice requirements.
This rule is being issued to allow for immediate implementation of this
program. Although this interim final rule is effective immediately,
comments are solicited from interested members of the public on all
aspects of the interim final rule, including section III below. These
comments must be submitted on or before June 22, 2020. SBA will
consider these comments and the need for making any revisions as a
result of these comments.
III. Paycheck Protection Program Additional Eligibility Criteria
Overview
The CARES Act was enacted to provide immediate assistance to
individuals, families, and organizations affected by the COVID-19
emergency. Among the provisions contained in the CARES Act are
provisions authorizing SBA to temporarily guarantee loans under the
PPP. Loans under the PPP will be 100 percent guaranteed by SBA, and the
full principal amount of the loans and any accrued interest may qualify
for loan forgiveness. Additional information about the PPP is available
in interim final rules published by SBA and the Department of the
Treasury in the Federal Register (85 FR 20811, 85 FR 20817, 85 FR
21747, 85 FR 23450, 85 FR 23917, 85 FR 26321, 85 FR 26324, and 85 FR
27287) and posted on May 8, 2020, May 13, 2020, and May 14, 2020 (85 FR
29845, 85 FR 29842, and 85 FR 29847) (collectively, the PPP Interim
Final Rules).
1. Treatment of Foreign Affiliates
Are employees of foreign affiliates included for purposes of
determining whether a PPP borrower has more than 500 employees?
Yes. The CARES Act specifies that an entity is eligible for a PPP
loan only if it is (1) a small business concern, or (2) a business
concern, nonprofit organization described in section 501(c)(3) of the
Internal Revenue Code, veterans organization described in section
501(c)(19) of the Internal Revenue Code, or Tribal business concern
described in section 31(b)(2)(C) of the Small Business Act that employs
not more than the greater of 500 employees, or, if applicable, SBA's
employee-based size standard for the industry in which the entity
operates. SBA's affiliation regulations provide that to determine a
concern's size, employees of the concern ``and all of its domestic and
foreign affiliates'' are included. 13 CFR 121.301(f). Therefore, to
calculate the number of employees of an entity for purposes of
determining eligibility for the PPP, an entity 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.\1\ Any entity that, together
[[Page 30837]]
with its domestic and foreign affiliates, does not meet the 500-
employee or other applicable PPP size standard is therefore ineligible
for a PPP loan.
---------------------------------------------------------------------------
\1\ Section 7(a)(36)(D)(iv) of the Small Business Act (15 U.S.C.
636(a)(36)(D)(iv), as added by the CARES Act, waives SBA's
affiliation rules 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 Administration;
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). SBA also applies affiliation
exceptions to certain categories of entities. 13 CFR 121.103(b).
---------------------------------------------------------------------------
However, as an exercise of enforcement discretion due to reasonable
borrower confusion based on SBA guidance (which was later resolved
through a clarifying FAQ on May 5, 2020), SBA will not find any
borrower that applied for a PPP loan prior to May 5, 2020 to be
ineligible based on the borrower's exclusion of non-U.S employees from
the borrower's calculation of its employee headcount if the borrower
(together with its affiliates) \2\ had no more than 500 employees whose
principal place of residence is in the United States. Such borrowers
shall not be deemed to have made an inaccurate certification of
eligibility solely on that basis. Under no circumstances may PPP funds
be used to support non-U.S. workers or operations.
---------------------------------------------------------------------------
\2\ For purposes of this safe harbor, a borrower must include
its affiliates to the extent required under the interim final rule
on affiliates, 85 FR 20817 (April 15, 2020). SBA's affiliation
exceptions in 13 CFR 121.103(b) apply to the PPP.
---------------------------------------------------------------------------
2. Additional Information
SBA may provide further guidance, if needed, through SBA notices
that will be posted on SBA's website at www.sba.gov. Questions on the
Paycheck Protection Program may be directed to the Lender Relations
Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the
purposes of Executive Orders 12866 and 13563, and is considered a major
rule under the Congressional Review Act. SBA, however, is proceeding
under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate the
current economic conditions arising from the COVID-19 emergency. This
rule's designation under Executive Order 13771 will be informed by
public comment.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance
with the standards set forth in section 3(a) and 3(b)(2) of Executive
Order 12988, to minimize litigation, eliminate ambiguity, and reduce
burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule will not have substantial direct
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various layers of government. Therefore, SBA
has determined that this rule has no federalism implications warranting
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will not impose new or modify
existing recordkeeping or reporting requirements under the Paperwork
Reduction Act.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule, or a final rule pursuant to section
553(b) of the APA or another law, the agency must prepare a regulatory
flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to describe the impact of a
rulemaking on small entities by providing a regulatory impact analysis.
Such analysis must address the consideration of regulatory options that
would lessen the economic effect of the rule on small entities. The RFA
defines a ``small entity'' as (1) a proprietary firm meeting the size
standards of the Small Business Administration (SBA); (2) a nonprofit
organization that is not dominant in its field; or (3) a small
government jurisdiction with a population of less than 50,000. 5 U.S.C.
601(3)-(6). Except for such small government jurisdictions, neither
State nor local governments are ``small entities.'' Similarly, for
purposes of the RFA, individual persons are not small entities. The
requirement to conduct a regulatory impact analysis does not apply if
the head of the agency ``certifies that the rule will not, if
promulgated, have a significant economic impact on a substantial number
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish
the certification in the Federal Register at the time of publication of
the rule, ``along with a statement providing the factual basis for such
certification.'' If the agency head has not waived the requirements for
a regulatory flexibility analysis in accordance with the RFA's waiver
provision, and no other RFA exception applies, the agency must prepare
the regulatory flexibility analysis and publish it in the Federal
Register at the time of promulgation or, if the rule is promulgated in
response to an emergency that makes timely compliance impracticable,
within 180 days of publication of the final rule. 5 U.S.C. 604(a),
608(b). Rules that are exempt from notice and comment are also exempt
from the RFA requirements, including conducting a regulatory
flexibility analysis, when among other things the agency for good cause
finds that notice and public procedure are impracticable, unnecessary,
or contrary to the public interest. SBA Office of Advocacy Guide: How
to Comply with the Regulatory Flexibility Act, Ch.1. p.9. Accordingly,
SBA is not required to conduct a regulatory flexibility analysis.
Jovita Carranza,
Administrator.
[FR Doc. 2020-10967 Filed 5-19-20; 11:15 am]
BILLING CODE P