Guidance from Treasury on PPP (Payroll Protection Program)
When the Final Interim Rule of the Payroll Protection Program was published by the Treasury Department on Thursday night, the 16-page document seems thin with details, leaving banks on the sideline waiting for more clarity and businesses scrambling.
On Friday night, the Treasury Department published 2 more crucial pieces of information that could be a game-changer for many businesses and lenders.
For borrowers:
The Treasury Department clarified guidance on the affiliation ruling. The Payroll Protection Program is aimed to alleviate the cash crunch for small businesses. The 500 employees or less is a broad brushstroke that on the surface seems an easy enough determination. However, the caveat that Treasury clarified on Friday night might change how the size of a business is determined.
According to Treasury- “Under SBA rules, entities may be considered affiliates based on factors including stock ownership, overlapping management, and identity of interest.”
What that means according to Friday night’s document is:
The ownership and control of a business could potentially be counted into the size of the business.
In addition, the financial interest could also be counted:
Finally, management control is considered in the Affiliation rules. CEOs or Presidents’ outside business interests will also be considered, as well as those of its close relatives.
This clarification published by the Treasury might cloud the eligibility of many small businesses, especially those backed by individuals, corporates, or funds. In addition, it could further prolong the timeline of application and approval.
The silver lining might be that the Treasury Department also provided sweeteners for lenders. It is our hope that it can increase lenders’ ability and willingness to execute the program in a timely and supportive manner. Details and analysis on the lender side could be found here.
Speak soon,
Whitney
