In early April, the United States approved the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) authorizing $349 billion in a small business lending program called the Paycheck Protection Program (“PPP”). For franchising, this relief package seemed like a no-lose program. Moreover, in many ways the program was tailor- made for franchising because, among other things, it specifically states that the relationship between a franchisor and a franchisee does not act as an association between the two, which could otherwise prevent franchisees from receiving PPP loans. But with government money comes government oversight.

Many franchised businesses that the PPP is intended to help may be unfamiliar with the web of regulations involved in Small Business Administration (“SBA”) loans and the government enforcement apparatus that polices compliance with these regulations. The rapid deployment of the PPP required by the current economic emergency resulted in multiple questions related to loan eligibility and use of funds. Recent changes in the program that have added flexibility for businesses and extended the terms of the loans also raise new questions ensuring that businesses will struggle with PPP requirements and applications for loan forgiveness through much of this year. Topics covered in this discussion include:

1. Background on the CARES Act and the PPP loan program
2. Loan eligibility requirements for franchisors and franchised businesses
3. Rules for use of funds and forgiveness of PPP loans
4. Potential liability for businesses that violate regulations associated with the PPP loan program
5. Pointers for compliance with PPP loan program regulations
6. Reputational fallout for franchise systems receiving PPP loans

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