SBA: It’s (Maybe) Fine if You Didn’t Count the Employees of Your Foreign Affiliates for PPP Purposes

In what might be a classic “now you tell me” scenario, the SBA issued a new rule May 21 saying that if an applicant failed to count the employees of its foreign affiliates when it was determining its eligibility, the SBA will not hold that against the applicant so long as the application was submitted before the SBA clarified that requirement.

The problem with that, however, is that because the safe harbor ended May 18, it’s highly likely that a lot of those businesses already gave their PPP loan back. They’d be forgiven for thinking they had to, as earlier this month Sen. Marco Rubio was indicating that Congress would investigate companies who took PPP funds for which they weren’t eligible.

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SBA Rejects Major Changes in Size Standard Methodology

The SBA has rejected several recommendations for major changes in how the SBA calculates small business size status.

In commentary published in the Federal Register last week, the SBA rejected (among other things) recommendations that it use average employee count to evaluate the sizes of construction firms and that other firms’ sizes be measured by profits or net worth instead of average annual receipts.

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SBA Eliminates Megawatt Hours Size Standards

The SBA has issued a final rule eliminating the unusual megawatt hours size standard applicable to six NAICS codes in NAICS Sector 22.  The SBA’s revision replaces the megawatt hours size standard with a 500-employee size standard, and eliminates the requirement that a firm must be “primarily engaged” in the generation, transmission  or distribution of energy for sale.

Although the megawatt hours size standard may have made sense when it was adopted in the 1970s, the SBA appropriately recognized that the market has changed.  Perhaps most important, the “primarily engaged” component of the megawatt hours size standard unfairly excluded many companies from competing as “small” in NAICS Sector 22.

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SBA OHA: Inactive Employees Count for SBA Size Purposes

Back in my undergraduate days at Duke, I attended almost all of the home basketball games.  Occasionally, sometime in the second half, with the Blue Devils up 20 points or more, an opposing player would execute an impressive dunk, and proceed to do a little celebration.  I, along with my fellow Cameron Crazies, would immediately begin chanting, “scoreboard, scoreboard,” while pointing at the device in question.  Our message was, “that’s nice, but it just doesn’t matter.”  (Actually, we Crazies sometimes chanted “just doesn’t matter,” too).

“That’s nice, but it just doesn’t matter” is what the SBA’s Office of Hearings and Appeals had to say in a recent size appeal decision involving the question of whether employees who are sick, on vacation, or even comatose count toward a company’s employee-based SBA size standard.  SBA OHA’s answer: if they’re on the payroll, they count.  Period.

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