Paycheck Protection Program Guidance Issued on Affiliation and for Faith-Based Organizations

Regulation | April 05, 2020 | by Brendan Flinn

On April 3, the U.S. Small Business Administration (SBA) issued new guidance for Paycheck Protection Program applicants on affiliation of organizations as it relates to eligibility for Paycheck Protection Program funds. It also issued a frequently asked question document for faith-based organizations. This article provides a brief summary of both and highlights areas of particular interest to LeadingAge members.

On April 3, the U.S. Small Business Administration (SBA) issued new guidance for Paycheck Protection Program applicants on affiliation of organizations as it relates to eligibility for Paycheck Protection Program funds. It also issued a frequently asked question document for faith-based organizations. The information in both of these documents are incorporated in a new Interim Final Rule from SBA on the Paycheck Protection Program, which LeadingAge is also reviewing and intends to comment upon.

This article provides a brief summary of both and highlights areas of particular interest to LeadingAge members. We recommend full review of both documents when determining eligibility for these funds.

Affiliation Guidance

Affiliation is important in the context of the Paycheck Protection Program because funds are limited to organizations, including 501(c)(3) not-for-profits, with 500 or fewer employees. If there are multiple organizations or communities, such as a multi-site aging services provider, that are considered affiliated under Paycheck Protection Program guidance, those organizations may not be eligible if they collectively employ more than 500 people, even if each individual organization/community employs fewer than 500 people.

Per the new SBA guidance, there are four tests that are used to determine whether an applicant organization is affiliated with another organization, listed below.

  1. Affiliation based on ownership.
  2. Affiliation arising under stock options, convertible securities, and agreements to merge.
  3. Affiliation based on management.
  4. Affiliation based on identity of interest.

Of particular interest to LeadingAge members may be the affiliation tests based on ownership and on management, which are quoted in full below.

Affiliation based on ownership. For determining affiliation based on equity ownership, a concern is an affiliate of an individual, concern, or entity that owns or has the power to control more than 50 percent of the concern's voting equity. If no individual, concern, or entity is found to control, SBA will deem the Board of Directors or President or Chief Executive Officer (CEO) (or other officers, managing members, or partners who control the management of the concern) to be in control of the concern. SBA will deem a minority shareholder to be in control, if that individual or entity has the ability, under the concern's charter, by-laws, or shareholder's agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.

Affiliation based on management. Affiliation arises where the CEO or President of the applicant concern (or other officers, managing members, or partners who control the management of the concern) also controls the management of one or more other concerns. Affiliation also arises where a single individual, concern, or entity that controls the Board of Directors or management of one concern also controls the Board of Directors or management of one of more other concerns. Affiliation also arises where a single individual, concern or entity controls the management of the applicant concern through a management agreement.

This guidance also provides a religious exemption for some faith-based organizations. Specifically, “The relationship of a faith-based organization to another organization is not considered an affiliation with the other organization if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion”. This is discussed further in the FAQ document below. LeadingAge is reviewing this guidance further to determine the applicability to our members.

Faith-Based Organization Frequently Asked Questions

The FAQ document provides further information specific to faith-based organizations and SBA loans, including the Paycheck Protection Program. LeadingAge is reviewing this guidance further to determine the applicability to our members, and are including some excerpts from the document that may be of particular interest to members.

Are faith-based organizations, including houses of worship, eligible to receive SBA loans under the PPP and EIDL programs? Yes, and we additionally clarify that faith-based organizations are eligible to receive SBA loans regardless of whether they provide secular social services. That is, no otherwise eligible organization will be disqualified from receiving a loan because of the religious nature, religious identity, or religious speech of the organization…

Are there any limitations on how faith-based organizations can use the PPP and EIDL loan money they receive? Only the same limitations that apply to all other recipients of these loans (such as that loan forgiveness will cover non-payroll costs only to a maximum of 25% of the total loan to a recipient). The PPP and EIDL loan programs are neutral, generally applicable loan programs that provide support for nonprofit organizations without regard to whether they are religious or secular…

Is my faith-based organization disqualified from any SBA loan programs because it is affiliated with other faith-based organizations, such as a local diocese? Not necessarily. Under SBA’s regulations, an affiliation may arise among entities in various ways, including from common ownership, common management, or identity of interest. 13 C.F.R. §§ 121.103 and 121.301. These regulations are applicable to applicants for PPP loans. (They also apply to the EIDL program when determining certain loan terms, although aggregating the number of employees of affiliated organizations does not affect eligibility for EIDL loans.) Some faith-based organizations likely would qualify as “affiliated” with other entities under the applicable affiliation rules. Entities that are affiliated according to SBA’s affiliation rules must add up their employee numbers in determining whether they have 500 or fewer employees.

But regulations must be applied consistent with constitutional and statutory religious freedom protections. If the connection between your organization and another entity that would constitute an affiliation is based on a religious teaching or belief or is otherwise a part of the exercise of religion, your organization qualifies for an exemption from the affiliation rules. For example, if your faith-based organization affiliates with another organization because of your organization’s religious beliefs about church authority or internal constitution, or because the legal, financial, or other structural relationships between your organization and other organizations reflect an expression of such beliefs, your organization would qualify for the exemption. If, however, your faith-based organization is affiliated with other organizations solely for non-religious reasons, such as administrative convenience, then your organization would be subject to the affiliation rules. SBA will not assess, and will not permit participating lenders to assess, the reasonableness of the faith-based organization’s good-faith determination that this exception applies.