On Friday, April 3, we posted that under the Interim Final Rule issued by the Small Business Administration (SBA) on April 2, businesses owned by an officer, director, key employee, or 20% or more shareholders of a lender are not eligible for a Paycheck Protection Program (PPP) loan from that lender. As noted at the top of page 8 of the Interim Final Rule, “[b]usinesses that are not eligible for PPP loans are identified in 13 CFR 120.110.” Section 120.110(o) says “[b]usinesses in which the Lender . . . or any of its Associates owns an equity interest” are ineligible. “Associate” of a lender is defined in 13 CFR § 120.10(1) as “[a]n officer, director, key employee, or holder of 20 percent or more of the value of the Lender’s . . . stock.” Thus, any business in which any one of those types of individuals owns any equity interest would be disqualified from a PPP loan made by that lender.

Since that alert was posted, you should be aware of one other important aspect of loans under the PPP. According to 13 CFR § 120.10(1)(ii) and the SBA’s guidance in SOP 50 10, this restriction applies not only to a lender’s officers, directors, key employees, and 20% or more shareholders, but also to businesses in which a “Close Relative” of any such individual has an interest. A “Close Relative” is defined in 13 CFR § 120.10 as “a spouse; a parent; or a child or sibling, or the spouse of any such person.”

We have been asked numerous times since our last alert whether a bank’s Associates, including directors, could obtain a PPP loan from a lender with which they are not affiliated. We have no reason to believe that they cannot participate through an unaffiliated lender since 13 CFR § 120.110(o) only prohibits loans to businesses in which Associates of the Lender have an equity interest.