PPP + EIDL Eligibility for Foreign-Owned U.S. Businesses
Smart Summary
U.S. companies with foreign ownership may be eligible for both the PPP and EIDL government loan programs, depending on corporate structuring.EIDL eligibility counts employees of all affiliated companies, whether U.S. or non-U.S., toward the general 500 cap.The PPP is more lenient, and counts employees of all affiliated companies toward the 500 general cap ONLY IF they have a principal place of residence in the U.S.
In
light of the new loan programs from the Small Business Administration (“SBA”),
small businesses all over the United States have acted quickly to apply for and
obtain the newly available funds. Both the Paycheck Protection Program (“PPP”)
and the Economic Injury Disaster Loans (“EIDLs”) provide a small business owner
with operating capital necessary to implement a holistic cash access strategy in order to survive
– and possibly thrive – during this “Great Pause.” A
savvy business owner can combine both the PPP and EIDLs
to have many operating expenses entirely covered while weathering the storm of U.S.
government-imposed lockdowns. This is very clear for companies based in the
U.S., but what about U.S.-based businesses with foreign parent companies? Can
they take advantage of the PPP and EIDL? The answer is: maybe.A
U.S.-based company owned by a foreign company may be eligible for both the PPP
and an EIDL. In most of these cases, the answer will depend on two things: 1)
number of employees, and 2) the organizational structure of the conglomerate. Number of Employees
Under EIDLs + the PPPAlthough
there are several eligibility requirements, an applicant business is generally
eligible for a loan under either program if it has fewer than 500 employees. If
a business has more employees, it may still be eligible if the size is
considered “small” based on industry standards, as determined by
the SBA. Under both programs, employees of affiliates are attributable to an
applicant. However, to make matters more confusing, the number of employees
attributable to an applicant are calculated differently under each program.Number
of Employees under an EIDL – Foreign Affiliate Employees CountA
U.S. company owned by a foreign company has at least one affiliate (its parent
company and possibly other companies also owned by the parent company). For
purposes of an EIDL, all employees of affiliates are
counted against an applicant, regardless of the employee’s principal place of
residence. If a company is found to be an affiliate of an applicant, then all
employees of the affiliate, both U.S. and non-U.S., are counted against the
applicant.Number
of Employees under the PPP – Foreign Affiliate Employees Might Not CountUnlike
the EIDL program, the PPP makes an important distinction with respect to employees
of affiliates. Based on guidance issued by the SBA, only employees of affiliates having a
principal place of residence in the United States count against an
applicant for purposes of determining eligibility under the PPP. Therefore,
even if a U.S. company with a foreign parent company and foreign affiliates
would be well over the 500 threshold for purposes of an EIDL, it may be
eligible for a PPP if, between the applicant and its affiliates, there are not
greater than 500 employees having a principal place of residence in the United
States.Affiliation- Why
Your Company Structure MattersThe
structure of an applicant’s parent company will determine how many affiliates
are attributable to an applicant. A comprehensive analysis of the SBA’s affiliation rules is necessary to
conclusively determine whether entities are affiliates. But generally speaking,
entities are affiliates if one controls the other or a third party has the
power to control both. Control is determined by analyzing the governing
documents of the entities. Notably, control may be found even if there is
simply an ability to block action by the entity, or “negative control.” Examples + Related
EligibilityAs we mentioned above, the structure of the conglomerate matters for determining
eligibility under the PPP and an EIDL. Here are examples some examples.Company A – Eligible for PPP and EIDLResult: Company 1 is eligible under the PPP and for an EIDL. Explanation: Parent, Company X, and Company Y would be considered
affiliates. Because Parent has the ability to control Company A (via its 100%
ownership), Parent is an affiliate of Company A. Further, because Parent has
the power to control Company A, Company X, and Company Y, they would also be
considered affiliates. Therefore, for purposes of Company A’s eligibility under
an EIDL, the total number of employees attributable to it would be 400. Company
A is also eligible under the PPP because only 100 of the total employees have a
principal place of residence in the U.S.Company B – Eligible
for PPP, but not EIDL Result: Company B is eligible under the PPP, but not for an
EIDL. Explanation: Parent, Company X, and Company Y would be considered
affiliates. Because Parent has the ability to control Company B (via its 100%
ownership), Parent is an affiliate of Company B. Further, because Parent has
the power to control Company B, Company X, and Company Y, they would also be
considered affiliates. Therefore, for purposes of Company B’s eligibility under
an EIDL, the total number of employees attributable to it would be 3,100.
However, Company B is eligible under the PPP because only 100 of the total
employees have a principal place of residence in the U.S.Company C – Not
Eligible for the PPP or EIDLResult: Company C is not eligible under the PPP or for an
EIDL. Explanation: Parent, Company X, and Company Y would be considered
affiliates. Because Parent has the ability to control Company C (via its 100%
ownership), Parent is an affiliate of Company C. Further, because Parent has
the power to control Company C, Company X, and Company Y, they would be
considered affiliates. Therefore, for purposes of Company C’s eligibility under
an EIDL, the total number of employees attributable to it would be 3,100.
Company C is also not eligible under the PPP because 600 of the total employees
(Company C’s and Company X’s) have a principal place of residence in the U.S. What You Should DoIf
you are a U.S.-based company owned by a foreign company, you may be eligible
under these loan programs. The answer lies in the total number of employees
under your parent company’s corporate umbrella, how many of them would be
attributable to you under the affiliation rules, and where the employees have a
principal place of residence. You should contact legal counsel familiar with
the SBA’s affiliation rules and both programs to make the ultimate decision as
to your eligibility for an EIDL or under the PPP.Vinita Mehra is a
director and chair of the firm’s Global Business team, working with U.S.
subsidiaries of companies based outside the U.S. in coordinating, acquiring and
maximizing federal loans as a result of the pandemic. She can be reached
directly at vmehra@keglerbrown.com or (614) 255-5508.
