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Coronavirus Relief Loan – The CARES Act’s Paycheck Protection Program (PPP)
We’re here to help keep you informed. Answers will be updated as new details become available based on guidance from the US Treasury Dept., the Small Business Administration, and lenders processing and issuing PPP loans.
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According to the International Franchise Association (IFA), if a franchise brand is listed on the SBA Franchise Directory, each of its franchisees that meets the applicable size standard can apply for a PPP loan. (The franchisor does not apply on behalf of its franchisees.) The $10 million cap on PPP loans is a limit per franchisee entity, and each franchisee is limited to one PPP loan.
Franchise brands that have been denied listing on the Directory because of affiliation between franchisor and franchisee may request listing to receive PPP loans. SBA will not apply affiliation rules to a franchise brand requesting listing on the Directory to participate in the PPP, but SBA will confirm that the brand is otherwise eligible for listing on the Directory.
For additional guidance, the IFA has created a link to their own FAQ document to address specific questions about the PPP and how it relates to franchising.
According to the International Franchise Association (IFA) FAQ document, under the CARES Act, any single business entity that is assigned an NAICS code beginning with 72 (including hotels and restaurants) and that employs not more than 500 employees per physical location is eligible to receive a PPP loan.
In addition, SBA’s affiliation rules (13 CFR 121.103 and 13 CFR 121.301) do not apply to any business entity that is assigned an NAICS code beginning with 72 and that employs not more than a total of 500 employees. As a result, if each hotel or restaurant location owned by a parent business is a separate legal business entity, each hotel or restaurant location that employs not more than 500 employees is permitted to apply for a separate PPP loan provided it uses its unique EIN.
The $10 million maximum loan amount limitation applies to each eligible business entity because individual business entities cannot apply for more than one loan. The following examples illustrate how these principles apply.
Example 1. Company X directly owns multiple restaurants and has no affiliates.
- Company X may apply for a PPP loan if it employs 500 or fewer employees per location (including at its headquarters), even if the total number of employees employed across all locations is over 500.
Example 2. Company X wholly owns Company Y and Company Z (as a result, Companies X, Y, and Z are all affiliates of one another). Company Y and Company Z each own a single restaurant with 500 or fewer employees.
- Company Y and Company Z can each apply for a separate PPP loan because each has 500 or fewer employees. The affiliation rules do not apply because Company Y and Company Z each have 500 or fewer employees and are in the food services business (with a NAICS code beginning with 72).
Example 3. Company X wholly owns Company Y and Company Z (as a result, Companies X, Y, and Z are all affiliates of one another). Company Y owns a restaurant with 400 employees. Company Z is a construction company with 400 employees.
- Company Y is eligible for a PPP loan because it has 500 or fewer employees. The affiliation rules do not apply to Company Y because it has 500 or fewer employees and is in the food services business (with a NAICS code beginning with 72).
- The waiver of the affiliation rules does not apply to Company Z because Company Z is in the construction industry. Under SBA’s affiliation rules, 13 CFR 121.301(f)(1) and (3), Company Y and Company Z are affiliates of one another because they are under the common control of Company X, which wholly owns both companies. This means that the size of Company Z is determined by adding its employees to those of Companies X and Y. Therefore, Company Z is deemed to have more than 500 employees, together with its affiliates. However, Company Z may be eligible to receive a PPP loan as a small business concern if it, together with Companies X and Y, meets SBA’s other applicable size standards,” as explained in FAQ #2.
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NOTE: You can take a Paycheck Protection Program loan and an SBA Disaster Relief Loan (EIDL) only IF the EIDL loan is used for purposes other than what’s covered by the Paycheck Protection Program loan.