In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020, with immediate effect. The scale of the CARES Act is enormous. It contains relief measures for businesses and individuals amounting to $2 trillion. For small businesses, the most important part of the CARES Act is the $350 billion Payroll Protection Program (“PPP”), which provides a large subsidy to small businesses that is intended to allow them to maintain (or re-hire) their employees on the payroll for 2½ months. Although the PPP funding mechanism takes the form of loans, the borrowers will not be required to pay back the loans if they use the money for payroll, employee health insurance, rent, utilities, and/or pre-existing interest obligations.
Because of the urgency of the pandemic and the state-mandated stay-at-home orders, the CARES Act was negotiated and enacted with lightning speed, and the government wants the funds made available as quickly as possible. As a result, both the CARES Act itself and the regulatory guidance that has been issued by the Treasury and the Small Business Administration in the last few days are sketchy in the details.
This article discusses an important mystery of the PPP: is it available to small businesses that are foreign-owned?
Although the law is far from clear, the answer is “yes,” in some cases, and “perhaps not,” in other cases. Many foreign-owned small businesses will decide to take the money now and resolve the mysteries later.
The Murky Consequences of a “Bolt-On” Statute
The PPP is aimed at small businesses, which are defined in the CARES Act as “business concerns” with 500 or fewer employees whose principal place of residence is in the United States. The CARES Act itself does not limit the PPP to small businesses that are owned by US persons. However, because of the particular mechanism used by the CARES Act to move PPP money quickly into the hands of small businesses, it is not clear that all foreign-owned US small businesses will qualify.
The US federal government does not have a mechanism for injecting subsidies directly and quickly into small businesses, so Congress bolted the PPP onto an existing loan program run by the Small Business Administration (“SBA”). This approach, while expedient, results in a rough fit, as it attaches the PPP to a regime that was established for an entirely different purpose.
The SBA, which, along with the Treasury, has regulatory authority to administer the PPP, released an “Interim Final Rule” on April 2nd. Under the Interim Final Rule, some businesses that meet the general definition of an eligible small business under the Cares Act nonetheless are ineligible for PPP loans, namely those businesses “identified in” certain existing SBA regulations (the “Regulations”) “and described further in” Standard Operating Procedure 50 10, Subpart B, Chapter 2 (the “SOP”) [italics not in the original]. The Regulations state that businesses that are under foreign ownership may qualify if they are located in the US. The use of the permissive word “may” implies, of course, that “may not” remains a possibility, and indeed this is the case. Unfortunately, however, the Regulations and the SOP to not provide a clear and comprehensive framework for establishing which foreign-owned businesses qualify and which do not.
The SOP provides that all applicants for SBA Loans must, among other things:
- Be located in the United States
- operate primarily in the United States and
- either (i) be authorized to operate in the state or territory where it seeks SBA financial assistance or (ii) make a significant contribution to the United States economy through the payment of taxes to the U.S. or through the use of American products, materials, and labor.
These particular requirements will not stand in the way of many foreign-owned US businesses, but it seems that there are additional requirements to be met by foreign-owned businesses.
According to the SOP, “businesses owned by non-U.S. citizens may be eligible. See Paragraph III.C of this chapter” (“Paragraph IIIC”) [italics not in the original]. Paragraph IIIC leads off by saying that the “SBA can provide financial assistance to businesses that are at least 51% owned and controlled by persons who are not citizens of the U.S., provided the persons are lawfully in the U.S. and have an appropriate work visa.” This language implies that the SBA cannot provide financial assistance to businesses that are 51% owned and controlled by foreign citizens who are not lawfully in the US with an appropriate work visa. However, as discussed below, 51% foreign-owned businesses that are managed by US citizens or legal permanent residents may indeed be eligible.
* Partner, MacDonald Weiss PLLC.
 For a review of the key features of the PPP and other aid under the CARES Act, please see our companion article “Key Features of the CARES Act” by Noreen Weiss.
 Although there is no definition of a “business concern,” the term apparently is intended to apply to both (i) legal entities engaged in business and (ii) sole proprietors and individual independent contractors who do not operate their businesses in a separate legal entity.
 PPP Interim Final Rule, No. SBA-2020-0015,13 CFR 120 RIN 3445-AH34(III)(2)(a) (Apr. 2, 2020), https://www.sba.gov/document/policy-guidance–ppp-interim-final-rule.
 13 CFR 120.110.