SBA released final regulations affecting eligibility for their lending programs and the Disaster Loan Program. This final rule defines how the SBA will evaluate affiliation as part of SBA’s determination of size eligibility for their lending programs. This rule creates a new set of affiliation guidance for lending programs that differs from procurement. SBA is not accepting comments on this final rule, which will become effective on July 27, 2016.
Applicants for SBA’s Microloan Program will need to consider the following factors:
Ownership — SBA considers affiliation based on ownership if one person owns/controls 50% or more equity in the concern. If no one person owns 50% or more, SBA would determine that the small businesses is controlled by the firm’s President, Chairman of the Board, Chief Executive Officer (CEO) or managing partner would be deemed to have control.
Identity of interest — SBA’s final rule limits the identity of interest factor to close relatives.
Franchise and Licensing agreements — The rule limits SBA’s reviews of affiliations based on franchise agreements. SBA will limit the scope of its review to the applicant franchisee or and the franchisor. The will not consider any franchise or license relationship of an affiliate of the applicant. SBA will not consider a franchise or license relationship an affiliation, provided the franchisee/licensee has the right to profits, and bears the risk of loss.
Totality of the Circumstances — SBA chose to remove this factor in its final rule. SBA explained that the intent of this rule is to provide clarity and that there could be no “bright line” test for totality of the circumstances. Thus, SBA removed this factor from the final rule.
Newly Organized Concerns — This test is designed to prevent former small businesses from creating spin-off companies in order to continue to perform on small business contracts. SBA removed this factor and explained that, “the principle is appropriate for federal contracting, it is generally not applicable to the business loan programs.”
Joint ventures — Similar to the Newly Organized Concerns factor, SBA removed joint ventures affiliation test. SBA’s rule explains that this factor applies more to small businesses seeking federal contracts than applicants to the business loan programs.