Restaurant companies have been devastated by the COVID-19 pandemic. The National Restaurant Association estimates that the industry has already lost more than 3 million jobs and $25 billion in sales, and there are many more dark days ahead. The sweeping $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act includes special provisions designed to assist restaurant companies and their employees. It amends Section 7(a) of the Small Business Act to make forgivable and tax-free Paycheck Protection Program loans of up to $10 million available to “small businesses” and certain larger businesses that fall under North American Industry Classification System (NAICS) Sector 72, which defines “Accommodation and Food Services,” such as restaurants.

A great debate has been raging among lawyers since the Paycheck Protection Program details have been available about whether the SBA affiliation rules apply to NAICS Sector 72 companies. The affiliation rules require that companies be “affiliated” with their owners with positive or negative control (as defined in the SBA affiliation rules), and with other companies controlled by those owners, and that the size test be applied on a combined basis to all affiliated entities. This often results in the combined entity not meeting the size test for a “small business” and therefore being ineligible for an SBA loan.

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