SBA Posts New Rule with More Guidance on Affiliation and Eligibility for PPP Loans

On April 24, 2020, the U.S. Small Business Administration (“SBA”) posted a new Interim Final Rule on Requirements for Promissory Notes, Authorizations, Affiliations, and Eligibility. This Interim Final Rule supplements previous regulations and guidance on several important, discrete issues with regard to the Paycheck Protection Program (PPP). Our summary below focuses on sections of this Interim Final Rule which supplement previous guidance for borrowers:

  • Section 2a indicates that hedge funds and private equity firms, which are primarily engaged in investment or speculation, are ineligible to receive a PPP loan.
  • Section 2b indicates that the SBA affiliation rules do not specifically prohibit a portfolio company of a private equity fund from being eligible for a PPP loan. All borrowers must apply the affiliation rules in 13 CFR 121.301(f) as set forth in the Interim Final Rule on Applicable Affiliation Rules posted on April 3, 2020. The affiliation rules apply to private equity-owned businesses in the same manner as any other business subject to outside ownership or control.
  • Section 2c indicates that a hospital that is otherwise eligible to receive a PPP loan as a business concern or nonprofit organization (described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code) shall not be rendered ineligible for a PPP loan due to ownership by a state or local government, if the hospital receives less than 50% of its funding from state or local government sources, exclusive of Medicaid.
  • Section 3 indicates that a business’s participation in an Employee Stock Ownership Plan (“ESOP”) does not result in an affiliation between the business and the ESOP.
  • Section 4 indicates that if an applicant, or the owner of the applicant, is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan.
  • Section 5 provides a limited Safe Harbor with respect to certification concerning the need for a PPP loan. Consistent with section 1102 of the CARES Act, the Borrower Application Form requires PPP applicants to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Any borrower that applied for a PPP loan prior to the issuance of this regulation, and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.


For additional information on the Paycheck Protection Program, SBA disaster loans and emergency grants, as well as other Federal, state and local relief measures, please visit our COVID-19 Resource Center on our website. If you have any questions, please contact your Tronconi Segarra & Associates advisor or a member of our response team at


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