Skip to Main Content


Holland & Hart News Update

SBA Clarifies Treatment of Foreign Affiliates for 500-Employee Calculation

The Paycheck Protection Program (PPP) requires borrowers to certify that “[t]he applicant (1) is an independent contractor, eligible self-employed individual, or sole proprietor; or (2) employs no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by the SBA in 13 C.F.R. 121.201 for the applicant’s industry. There has been confusion among some borrowers as to whether employees of foreign affiliates should be included in the 500-employee calculation.  

On May 18, 2020, the SBA issued an Interim Final Rule clarifying the treatment of foreign affiliates for a borrower’s 500-employee calculation:

Question:  Are employees of foreign affiliates included for purposes of determining whether a PPP borrower has more than 500 employees?

Answer:  Yes. The CARES Act specifies that an entity is eligible for a PPP loan only if it is (1) a small business concern, or (2) a business concern, nonprofit organization described in section 501(c)(3) of the Internal Revenue Code, veterans organization described in section 501(c)(19) of the Internal Revenue Code, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act that employs not more than the greater of 500 employees, or, if applicable, SBA’s employee-based size standard for the industry in which the entity operates. SBA’s affiliation regulations provide that to determine a concern’s size, employees of the concern “and all of its domestic and foreign affiliates” are included. 13 C.F.R. 121.301(f). Therefore, to calculate the number of employees of an entity for purposes of determining eligibility for the PPP, an entity must include all employees of its domestic and foreign affiliates, except in those limited circumstances where the affiliation rules expressly do not apply to the entity. (Emphasis added) Any entity that, together with its domestic and foreign affiliates, does not meet the 500-employee or other applicable PPP size standard is therefore ineligible for a PPP loan.

However, as an exercise of enforcement discretion due to reasonable borrower confusion based on SBA guidance (which was later resolved through a clarifying FAQ on May 5, 2020), SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-U.S employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States. (Emphasis added) Such borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis. Under no circumstances may PPP funds be used to support non-U.S. workers or operations.  

This Interim Final Rule makes clear that, to calculate the number of employees for purposes of determining a borrower’s eligibility for the PPP, the borrower must include all employees of BOTH its domestic and its foreign affiliates.  

As a result, borrowers who applied for a PPP loan prior to May 5, 2020 and based their employee headcount eligibility only on employees employed by their domestic affiliates, not their foreign affiliates, this new guidance provides assurance that the borrower will not be found to have made an inaccurate certification of eligibility solely on that basis.

Finally, this Interim Final Rule reminds borrowers that PPP loan proceeds may only be used for U.S. workers and operations.

We encourage you to visit Holland & Hart’s Coronavirus Resource Site, a consolidated informational resource offering practical guidelines and proactive solutions to help companies protect their business interests and their workforce. The dynamic Resource Site is regularly refreshed with new topics and updates as the COVID-19 outbreak and the legal and regulatory responses continue to evolve. Sign up to receive updates and for upcoming webinars.

This publication is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal or financial advice nor do they necessarily reflect the views of Holland & Hart LLP or any of its attorneys other than the author(s). This publication is not intended to create an attorney-client relationship between you and Holland & Hart LLP. Substantive changes in the law subsequent to the date of this publication might affect the analysis or commentary. Similarly, the analysis may differ depending on the jurisdiction or circumstances. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.


Unless you are a current client of Holland & Hart LLP, please do not send any confidential information by email. If you are not a current client and send an email to an individual at Holland & Hart LLP, you acknowledge that we have no obligation to maintain the confidentiality of any information you submit to us, unless we have already agreed to represent you or we later agree to do so. Thus, we may represent a party adverse to you, even if the information you submit to us could be used against you in a matter, and even if you submitted it in a good faith effort to retain us.