The CARES Act, which was released amidst the COVID-19 shut-down, offers a $2 trillion relief package to help recover the economy and get it back on its track. The main feature of the CARES Act is the formation of the Paycheck Protection Program (PPP) under which the government has authorized $349 billion for small businesses to keep them afloat. This PPP allows each small business to apply for a $10 million loan, which can be used for covering expenses related to payroll, benefits, rent, and other costs from February 15, 2020, through June 30, 2020. 

The PPP, just like other small business support initiatives, will be administered by SBA and will come under the umbrella of its 7(a) business loan regime. April 3, 2020, was marked as the day when the Treasury issued the interim final rules and associated guidelines that acts as the last word and can be used to determine whether an entity is an affiliate or not of a loan applicant for this purpose. 

The new guidelines have succinctly and effectively talked about the control standards, which you can refer to get a better idea about how exactly the PPP works. The agendas discussed are as follows:-

1. If you are an applicant and have a holder who controls more than 50% of your voting securities, then such a holder would De Facto manage your voting securities. 
2. If you are an applicant and have a minority holder who controls less than 50% of your voting securities, then he/she would be considered an affiliate if he/she can practice control over your voting security through preventing a quorum or blocking actions taken by the board or stockholders. 
3. The same SBA case laws which prior governed will still be in action, and accordingly, a minority holder still would have the right to block operational actions. This right would be considered impermissible control, which would result in the determination of an affiliation.
4. If the element of ‘control’ is found between you and your minority holder, then all of the employees of the controlling holders and employees of the controlling holder’s affiliates (including portfolio companies of VC holders) will be summed up with your employees and the final count would be used to determine your eligibility for the PPP. 

The Bottom Line

The points outlined in the new guidelines will give you a clear glimpse of whether your business is eligible for the PPP loan or not. This is an excellent initiative that all small companies shall leverage to keep themselves up and to run. If you face any issues in decoding the new rules to ascertain your eligibility, then you can feel free to approach the MyTaxfiler experts at [email protected], and get a clear understanding of the whole Paycheck Protection Program.