The CARES Act Affiliation Rule Will Exclude Too Many Small Businesses: Legal Experts

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Many lower/middle market companies with private backing may be precluded from applying for financial assistance through the Coronavirus Aid, Relief, and Economic Security AKA CARES Act, given the current Small Business Administration (SBA) “affiliation rules.” The application of the SBA’s current rules would force many smaller companies to aggregate their employees with those of other unrelated companies because they have common equity investors, resulting in these companies surpassing the 500-employee threshold, ultimately being left out of receiving financial assistance.

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The letter below sent today by national law firm Seward & Kissel LLP to Steven Mnuchin, Secretary of the Treasury, and Jovita Carranza of the U.S. Small Business Administration, urging clarification be made that small businesses with equity investors will not be excluded from the loan program under the CARES Act. Seward & Kissel has represented many of these financial companies and their investors for more than 75 years, and these firms have been vital to our country’s growth, contributing immeasurably to numerous industries, including technology, healthcare, energy, manufacturing, and infrastructure.

Seward & Kissel's Letter To Steven Mnuchin On The CARES Act

The Honorable Steven Mnuchin

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Secretary

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, D.C. 20220

The Honorable Jovita Carranza

Administrator

U.S. Small Business Administration

409 3rd Street, S.W.

Washington, D.C. 20416

Dear Secretary Mnuchin and Administrator Carranza:

Thank you for your assistance during the Covid-19 pandemic. We are writing to you today to express our strong support for the recent letter submitted to you by the Association for Corporate Growth (ACG) on March 30, 2020 relating to the Small Business Administration’s (SBA) affiliation rules and their impact on certain companies seeking relief under the Paycheck Protection Program (PPP). As stated in the ACG letter, the application of the SBA’s current affiliation rules would force many smaller companies to aggregate their employees with those of other unrelated companies, merely because they have common equity investors. This aggregation will result in many instances of companies tripping the 500-employee threshold under the PPP.

Given that the President’s and Congress’ intent is to have the CARES Act provide relief to as many businesses as possible, we believe that this issue with respect to the affiliation rules was not intended here.

Seward & Kissel is a law firm that has represented many of these companies and their investors for more than 75 years. These firms have been vital to our country’s growth and have contributed immeasurably to numerous industries, including technology, healthcare, energy, manufacturing and infrastructure. We believe that now, more than ever, many of these companies need assistance, and they should not be denied that aid, especially since they will be so crucial to ensuring a speedy economic recovery for our nation.

We thank you for hearing our concerns and respectfully request that the Department of the Treasury and the SBA make clear that these small businesses are eligible for loans under the PPP.

Sincerely,

Kevin Neubauer

cc: Thomas Bohn, ACG

Martin Okner, ACG

SK 99142 0000 8512087 v1