SUMMARY: The Small Business Administration (SBA) is publishing this rule to rescind the regulations published on February 10, 2020, in the interim final rule (IFR) titled, “Express Loan Programs; Affiliation Standards” (Express IFR). The concept of affiliation can be tricky for PPP applicants and could cause the applicable employee limit to be inadvertently triggered. SBA 7a Borrower Information Form. Persons or concerns are subject to criminal penalties for knowingly making false statements or misrepresentations to SBA for the purpose of influencing any actions of SBA pursuant to section 16(a) of the Small Business Act, 15 U.S.C. ���J�a�F1��CC��qX�qe�t8�W'r����� In determining whether affiliation exists, … The SBA sets the guidelines that govern the 7(a) loan program. The SBA’s regulations regarding affiliation between companies controlled by close family members would be clarified under a proposed rule introduced on December 29.. The Applicant does not have any possible affiliates. Control can be evidenced by ownership, management, prior relationships, or contractual arrangements, and control could be affirmative or negative. 821 0 obj <>/Filter/FlateDecode/ID[<8D13529F718FE44E8FF6C9A9431EE8CB><19D491B29ACAAC44A750860B9878ED05>]/Index[793 59]/Info 792 0 R/Length 135/Prev 777969/Root 794 0 R/Size 852/Type/XRef/W[1 3 1]>>stream In such a case, the rules provide for a business to aggregate its employees and revenues with those other entities that the SBA considers to be the business’ affiliates in order to determine its eligibility to participate in the PPP. endstream endobj startxref .” – 15 U.S.C. The basic rule under 13 CFR 121.103 and 13 CFR 124.513 is that affiliation exists when one business controls the other. Although any one of the bases above may otherwise result in a finding of affiliation, certain exceptions to affiliation apply to prevent the aggregation of such entities as affiliates. 13 CFR 121.103 and 13 CFR 124.513 SBA Affiliation Rules. (a) General Principles of Affiliation. In those circumstances, the SBA presumes affiliation between the companies. . SBA affiliation rules governing identity of interest have a defense that a clear line of fracture exists if your family members have no business relationship or involvement with each other’s business concerns or the family members are estranged. Under the SBA affiliation definition, family members, persons with common investments, or firms that are economically dependent on contractual (or other) relationships, are among those treated this way. SCORE , an SBA partner, has templates and online tools to help small business owners set up each of these financial statement documents at score.org. TRUE FALSE Affiliation-- Entities are affiliated if one has the power to control the other or a third party has the power to control both. The CARES Act permanently rescinded that rule, but it was unclear what would be put in its place. �Al�N)���b˂��ځH9O�~잷 �g��N����10120��]:���9� ʹ� with small-business enterprises. %PDF-1.5 %���� The SBA has two primary concerns when it comes to business affiliations: Generally speaking, entities are affiliates of each other when one controls or has the power to control the other, or a third party (or parties) controls or has the power to control both. OMB Control No. (iii) SBA may recommend to the relevant procuring agency to issue a stop work order for each Federal contract for which the mentor and protégé are performing as a small business joint venture pursuant to paragraph (d)(1) of this section in order to encourage the mentor to comply with its mentor/protégé agreement. The SBA’s general rule of affiliation is that two businesses will be considered affiliates if one owns or has the ability to control the other. Lƹ�`J�F�(�0,M�bL^k��� �aZ F�h��C#:{�e��i��z#�0��'~p����i6�W���=��/ˬ��m�`�c8`��-zV���d> �5�.F�Ç��K^��Jf��y�'���I6^���|V��=�ߝژBP�46�gӜ_�|��������O�Yl����B�2����x�3�O�lT�Ƹp~�=T!I��_���w�P��Ơ��Ţ�/�u�҈������1��j̐BK�7A�ѦR:=���K�h/�0���;� �m��>�m���n��/��޴�HcS��\�(�nI�6quWc�mS|������0%�d����G��9�_��lU����rU�eC�5� v�O��E*�#��_�ߔ��}���G����a����KQ�^��٠�s/S����d����S��T���͵���7?�b�aW�$b*��f1����e�W�k8�D;�sP�s$e]��46-�׶�����!�N���� Never Guess At the SBA Affiliation Rules, You May be Wrong. . 0 According to the SBA’s guidelines, an affiliation may occur when the business applying for an SBA loan is associated with another entity and either entity can show financial or operational control, even if control is not exercised. A small agricultural cooperative is an association (corporate or otherwise) acting pursuant to the provisions of the Agricultural Marketing Act (12 U.S.C. �@�;�PeG uR . §121.103 (“Section 103”) and they focus primarily on matters of control. h�b```������@��(���q����,����������?���2�1�:uTp_f\�@�떆�3�-��JN�t�1�f��pt���j�. To learn more about cookies, how we use them and how to revise your cookie settings, Kutak Rock LLP is ISO 27001:2013 certified, Publications - Client Alert | April 10, 2020, {{result.label}} | {{result.contentType}}, Coronavirus Aid, Relief, and Economic Security Act. On April 3, the SBA issued Affiliation Rules specific to the PPP, and we have provided an overview of the affiliation rules. Ultimately, it does not matter whether control is actually exercised; it just matters that the power to control exists. They are somewhat more specific and limited, and are generally as follows: The CARES Act provides a 500-employee cap for all applicants for the PPP (unless the SBA has established a higher cap for the applicant’s industry). SBA’s rules on affiliation for its programs (except SBIR, STTR, Business Loans, Disaster Loans, and Surety Bonds) are found at. Under the SBA’s definition and meaning, small business affiliation exists when your business controls or has the power to control another company or when a third party controls or has the power to control both businesses. § 121.103(c)(1). 1994-2020 Kutak Rock LLP. . online at Title 13 Part 121 of the Code of Federal Regulations (CFR). 645(a), as amended, including failure to correct “continuing representations” that are no longer true. The new Interim Final Rule provides clarification regarding the application of the SBA’s affiliation rules in determining borrower eligibility for a PPP loan. As a lender, these conditions determine which businesses you can lend to and the type of loans you can give. See Size Appeal of Hal Hays Constr., Inc., SBA No. Under SBA regulations, certain affiliation rules are considered when calculating the number of employees of a business to determine whether it meets the SBA size standards for a small business. SBA Affiliation Rules For purposes of determining the number of employees of an applicant for a Paycheck Protection Program (PPP) loan, in most cases, the applicant must count the number of employees of not only the applicant but also of any affiliate of the applicant. 1 Therefore, to properly analyze whether a company is a qualifying “small business,” one must understand the SBA’s complex affiliation rules. Section 301(f) provides the main principles upon which to determine whether or not entities are affiliated, any one of which would be sufficient to establish affiliation. The SBA uses various legal approaches when seeing whether a small business meets the affiliation definition when performing with a subcontractor. In particular, the CARES Act and its rules provide that the affiliation provisions shall not apply to the following: In addition to the above, Section 301 specifically provides that the exceptions to affiliation listed in Section 103 also apply to the PPP. h��WmO�6�+���N-���NH�wH@%��R��M�H����¿��Y؅���>��O�=��K��R1����z,��`i��K�BXzR��3X��@5 It is worth noting that each applicant for PPP funds must make several attestations in its application, including some that will depend heavily on an affiliation determination, and an incorrect attestation could lead to unexpected liability and potentially severe consequences. The regulations are available. The CARES Act states that the SBA’s affiliation rules apply regarding eligibility determinations for Paycheck Protection Loans. Affiliation 13 Relevant Factors SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists. Generally speaking, entities are affiliates of each other when one controls or has the power to control the other, or a third party (or parties) controls or has the power to control both. These financial statements are separate from the personal financial statement, which is outlined in SBA Form 413. Determining which entities are affiliates Entities, including Nonprofit Organizations, are deemed affiliates of each other if one entity controls, or … Link to an amendment published at 85 FR 66178, Oct. 16, 2020. : 3245-0348 . The SBA sets the guidelines that govern the 7(a) loan program. The most basic example of … As a lender, these conditions determine which businesses you can lend to and the type of loans you can give. One of the easiest small business affiliation rules to apply is that a person that owns “50 percent or more of a concern’s voting stock . The Paycheck Protection Program: Determining Affiliation. %%EOF Section 121.103(a)(8) of the Small Business Act provides that applicants in SBA’s Business Loan Programs, which would include the PPP, are subject to the affiliation rules contained in 13 CFR 121.301. AFFILIATION RULES APPLICABLE TO U.S. SMALL BUSINESS ADMINISTRATION PAYCHECK PROTECTION PROGRAM Four tests for affiliation based on control apply to participants in the Paycheck Protection Program.1 For purposes of the determining the number of employees of an applicant to the § 121.103 How does SBA determine affiliation? [T]he detailed affiliation standards contained in section 121.103 currently do not apply to PPP borrowers, because section 121.103(a)(8) provides that applicants in … § 121.103. Yet, many companies tend to roll the dice and then late become subject to a small business size protest and lose the profits and revenues from the awarded government contracts. 1141j) whose size does not exceed the size standard established by SBA for other similar agricultural small business concerns. Under the Small Business Administration’s “present effect rule,” an LOI can create affiliation between parties negotiating a potential sale or merger. We use cookies on our website. It also applies if one business has the power to control another or when a third … While such measures may seem straightforward enough to readily evaluate for an independent company, the issue becomes murky if it’s necessary to account for the SBA’s affiliation rules for an entity with subsidiaries or other related entities or businesses. The SBA’s general principles of affiliation are set forth in 13 C.F.R. This action is necessary to implement section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which permanently rescinded the interim final rule … The above is just a brief summary of the complex affiliation principles, but it should provide the basis to determine whether or not a deeper dive is needed to assess a PPP applicant’s affiliation status. 851 0 obj <>stream (1) Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. SIZ-5217, at 6 (2011). Notably, several recently enacted additional principles of affiliation relating to common-investment affiliation and economic-dependence affiliation were permanently rescinded in the CARES Act, so the bases upon which to find affiliation have been winnowed down. AFFILIATION CONSIDERATIONS AND PPP LOANS. Nevertheless, in determining whether affiliation exists, the SBA could consider the totality of the circumstances and may find affiliation even though no single factor alone is sufficient to constitute affiliation. All rights reserved. In this alert we will provide a general overview of the SBA’s affiliation determination rules in the hope of affording a little more clarity about how to apply them. endstream endobj 794 0 obj <>/Metadata 79 0 R/Outlines 122 0 R/Pages 791 0 R/StructTreeRoot 123 0 R/Type/Catalog>> endobj 795 0 obj <>/MediaBox[0 0 612 792]/Parent 791 0 R/Resources<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI]/XObject<>>>/Rotate 0/StructParents 0/Tabs/S/Type/Page>> endobj 796 0 obj <>stream (See also 13 CFR 121.107 and 121.301). h�bbd```b``� "�@$3�d���`RD����`v���_"�T@� H�Q�H25O���D controls or has the power to control the concern.” 13 C.F.R. SBA joint venture rules can be confusing the say the least. Purpose of this form: The purpose of this form is to collect information about the Small Business Applicant ("Applicant") and its owners, the loan For the full definition of affiliation, see 13 CFR 121.103. The CARES Act itself provides exemption provisions tailored to certain industries that were heavily impacted by the COVID-19 pandemic. On February 11, 2020, the SBA issued an interim final rule changing the affiliation standards for SBA loans, which took effect on March 11, 2020. 793 0 obj <> endobj Kutak Rock LLP is ISO 27001:2013 certified. The SBA’s primary affiliation rule applicable to its loan programs, such as the PPP, can be found at 13 C.F.R. That sounds simple enough, but – again – the SBA has very specific ideas on what it means to own or control. Under the affiliation rules, control can arise in a variety of circumstances including ownership, management, or other relationships or interactions between the parties. §121.103 (“Section 103”) and they focus primarily on matters of control. SBA Form 1919 (Revised 09/20) 1 . When it comes to the Three in Two Rule rule, or 3-in-2 rule, associated with joint venture arrangements, the regulations … For use with all 7(a) Programs Expiration Date: 09/30/2023. �f�"�� Ro%�~�z�|�lD����\6@�†�1@�?�nYmX����������L\;$�="X"$8�X�¶``6�`m`�h`m ө@���U� ���X�uuA���`ph�wb|$#\�����$�¶��J�/��`���f�����>�g4h��WF��v � �10�j��Y? §121.301 (“Section 301”). 13 C.F.R. If affiliation is potentially involved, the applicable relationships should be carefully examined before moving forward. By Staff May 13, 2020 Today, a bipartisan bill, the Local News and Emergency Information Act of 2020, was introduced in the Senate that offers legislative text around a Small Business Administration (SBA) affiliation waiver that would allow more news publishers to apply for SBA loans under the Paycheck Protection Program (PPP). �w2��b���L�����53-�d�L�Q��Rnc&. This form is provided for your convenience in responding to filing requirements on SBA Form 5, the Disaster Business Loan application. For minority shareholders, the standard, as stated in the Affiliation Overview, remains that the “SBA will deem a minority shareholder to be in control, if that individual or entity has the ability, under the concern's charter, by-laws, or shareholder's agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.” Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (PDF) (the “CARES Act”) established the Paycheck Protection Program (“PPP”), which is intended to provide some much-needed financial assistance to “small businesses.” The U.S. Small Business Administration (the “SBA”) has established rules to determine which businesses qualify as small, of which some determinations are based on the size of the business as measured in terms of the number of employees or amount of revenues generated by such business. If you have additional questions about force majeure provisions or notices, please contact your Kutak Rock attorney, or any of the attorneys in the Business, Corporate and Securities Group. •It is the “continuing policy and responsibility of the Federal Government to use all practical means to take such actions as are necessary” to foster the economic interests, growth, development, and competitiveness of small businesses. For example, the CARES Act provides a 500-employee cap for all applicants for the PPP, but the SBA has established a higher cap for certain industries. § 631(a) (Small Business Act of 1953). The SBA’s general principles of affiliation are set forth in 13 C.F.R. ( “ Section 103 ” ) and they focus primarily on matters of control 631 ( a ) Programs Date... Permanently rescinded that rule, but – again – the SBA ’ s primary rule. Issued affiliation rules industries that were heavily impacted by the COVID-19 pandemic the Code Federal! 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