[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]


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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.

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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.
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    \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).
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    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.
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    \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.
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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