Canadian-Owned Companies Active in United States May Be Eligible for Paycheck Protection Program
Posted on April 9, 2020
A team of our tax, finance and corporate colleagues has been closely monitoring the new aid packages that are coming out of Washington in response to the COVID crisis. Of particular interest over the past week has been the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) which provides a $349 billion boost to federal government guarantees on loans to qualifying small businesses. This program is part of the federal government’s Coronavirus Aid, Relief, and. Economic Security Act (“CARES Act”). Our summary of the salient features of this can be found in the below client alert:
https://www.hodgsonruss.com/newsroom-publications-11916.html
As described in the alert, the proceeds of these loans are to be used for payroll and payroll support, rent and utility payments, insurance and interest and may be forgiven if requirements are met. The loans are an extension of the 7(A) Business Loan program traditionally administered by the SBA and are obtained directly from SBA lenders (not the government). One notable difference is that the requirements for guaranties and collateral are waived for the present set of PPP loans.
The size requirements of what constitutes a “small business” are based on employee count. The applicant must have no more than 500 employees whose primary residence is the United States but there is a higher limit for businesses in certain industries as specified by its NAICS Code (the North American Industry Classification System). However, there are complex rules regarding affiliation, so the specified size must be compared to the size of the entire corporate family of the applicant, including US domestic and foreign affiliates. (Note that businesses in NAICS industry sector 72, which is “Accommodation and Food Services” are exempt from these affiliation rules and can make independent applications for this relief). Under the CARES Act and existing SBA regulations, we see no bar to foreign (non-US) owned companies obtaining these loans, so long as the business entity (together with its foreign affiliates) is under the specified size.
The application forms are available here:
https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
As discussed, these loans should be available for Canadian-owned companies active in the United States, and who pay US tax and employ US workers. Lenders may require that management be comprised of US citizens / LPRs, that management has been in place for at least the past year and an assurance that it will remain in place indefinitely. We urge our clients seeking this relief to make full and accurate disclosure in the required applications, including an organizational chart that clearly shows its foreign and domestic affiliates.
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