SBA Implements $20 Million Loan Limitation for Business Groups

Earlier today, the Small Business Administration (“SBA”) published a new Interim Final Rule (“IFR”) which limits the amount of Paycheck Protection Program (“PPP”) loans a “single corporate group” may receive to $20 million in total. This limitation appears to apply only to loan disbursements occurring after April 30, 2020, but borrowers should be aware of the limitation and its interplay with other recent SBA guidance.

The new IFR states, “for purposes of this limit, businesses are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent”. The IFR does not define the term “common parent,” so it is not immediately clear whether this limitations applies to groups of companies owned by an individual or groups of related individuals. The single corporate group limitation applies even if the companies in the group are not considered affiliates under the SBA affiliation rules.

Regarding an effective date, the IFR states, “this limitation shall be immediately effective with respect to any loan that has not yet been fully disbursed as of April 30, 2020,” and goes on to state, “[I]t is the responsibility of the applicant for a PPP loan to notify the lender if the applicant has applied for or received PPP loans in excess of the amount permitted by this interim final rule, and withdraw or request cancelation of any pending PPP loan application or approved PPP loan not in compliance with the limitation set forth in this rule.” A footnote also says, “[F]or loans that have been partially disbursed, this limitation applies to any additional disbursements that would cause the total PPP loans to a single corporate group to exceed $20 million.”  

It appears corporate groups that have already received more than $20 million of PPP loans are not required to immediately return any amount in excess of $20 million under this IFR. However, to the extent corporate groups have pending applications or are waiting on disbursements from lenders, those corporate groups should immediately contact their lender to cancel the pending loan disbursements if they have already received disbursements in excess of $20 million in total or those disbursements would put them over $20 million in total.

We expect the SBA will update its Frequently Asked Questions (“FAQs”) to clarify some of the questions and uncertainties in the new IFR. We will continue to monitor the guidance and update you as soon as any new information is available.

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