New SBA Rule Clarifies PPP Borrower Eligibility

The Small Business Administration today issued an interim final rule clarifying several issues around borrower eligibility for the Paycheck Protection Program as well as incorporating several previously issued FAQs.

Under the rule, hedge funds and private equity firms are ineligible for PPP loans, and SBA affiliation rules apply to companies held in private equity portfolios, SBA said. SBA added that PE portfolio firms should “carefully review” the PPP borrower certification on their economic needs.

The rule also clarified that a business with an employee stock ownership plan does not trigger the affiliation rules and that firms in bankruptcy proceedings at any point before funds are disbursed are ineligible for the PPP.

The rule, which took effect today, also formalized previous FAQ guidance on promissory notes, SBA authorization forms and a safe harbor for PPP borrowers who had access to capital market funding provided they return funds by May 7.

In related news, SBA added four questions to its FAQ document today. The newly added FAQs clarify that housing allowances count toward payroll costs; that lenders may use IRS regulations to determine whether an employee’s principal place of residence is in the U.S.; and that farmers, ranchers, other agricultural producers and ag and other forms of cooperatives are eligible for PPP loans, provided they meet the other eligibility requirements.