All, the new affiliation regs are out and I’m hoping that maybe they posted the wrong version:
- Paycheck Protection Program – Interim Final Rule on Affiliation (churches and religious freedom)
- Paycheck Protection Program – Applicable Affiliation Rules (business affiliation)
I have attached a redline of the new regulation against the existing text of 121.301(f).
- They literally changed nothing in the ownership, negative control, options or common management prongs. As far as I can tell, this means that the existing standards for both PE and VC funds continue to apply.
- They limited the identity of interest test to “close relatives”, which I think they may have intended to help sponsors not have to aggregate across funds, but … I’m not sure they achieved that by not making other changes to, e.g., common management.
- They eliminated the newly-organized concern, totality of the circumstances and franchise agreements prongs, which weren’t of much concern to investment funds anyway.
I need to go back and study this some more, because I’m not quite understanding how this is intended to help. If this holds, then it appears that the attached SBIC funding approach may remain the best avenue to eliminate affiliation issues, if there is time to close such a deal before the PPP funds are depleted.
I have not seen complete reporting, but at about 6 pm, I saw that Secretary Mnuchin reported that SBA has received applications from mostly smaller banks for $1.8B and CNBC reported that BofA had received 85k applications for $22B. Together those almost the match entire $28B of 2019 SBA loan volume. BofA was only accepting applications from customers with both a checking and lending arrangement (including credit cards), and its loan count alone still dwarfs the nationwide total of 63k SBA loans in 2019. I haven’t seen broader data on PPP applications, but if you have, please pass it along. Thank you.
Interestingly, BofA’s average is ~$250k per loan, which is about half of the size of its average 2019 SBA loan. Even if BofA’s average is representative is somewhat smaller than the ultimate national average, lenders might need to process more than 1 million loans over the next a few days or weeks, which is nearly 20x what they did for all of last year.