This overview provides guidance based on information currently available from the SBA regulations, the SBA’s interim final rule, the SBA’s General Counsel Letter and the SBA’s FAQs document. 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 control or has the power to control both. SBA Form 1919 (Revised 4/14) 1 OMB Control No. Small Business assistance training programs, help businesses to compete for federal government contracts. Pursuant to 13 C.F.R. In 2009, the SBA modified the 7(a) loan program guidelines to specifically give auto and RV dealers access to greater financing opportunity, doubling number of dealerships eligible for the SBA 7(a) program. The SBA amended its SBIR policy directive in 2012 to implement certain provisions of the National Defense Authorization Act for Fiscal Year 2012 affecting the program. If a minority shareholder in a business irrevocably waives or relinquishes any existing rights specified in 13 C.F.R. The U.S. Small Business Administration (“SBA”) published an interim final rule on affiliation (the “Affiliation IFR”) a summary of affiliation tests (the “Summary”), a lender application form and agreement, and FAQs, with respect to, the Paycheck Protection Program (the “Program” or “PPP” and such rule, the “Rule”). Investment companies registered under the Investment Company Act of 1940, as amended (1940 Act). The SBA affiliation rules also create an exception under 13 C.F.R. Affiliation based on identity of interest. 681). An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020. BORROWER INFORMATION FORM For use with all 7(a) Programs The purpose of this form is to collect identifying information about the applicant, loan request, The CARES Act provides a 500 employee size standard, which a business may use regardless of whether the applicant qualifies as a small business under SBA’s two existing size standards. As defined under the SBA regulations, affiliates include companies under common ownership, companies owned and managed by investors, and the holdings … 13 C.F.R. 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 This exclusion of employees of a former affiliate applies during the entire period of measurement, rather than only for the period after which affiliation ceased. 632. SBA’s rules on affiliation for its programs (except SBIR and STTR) are found at 13 C.F.R. This waiver applies to such entities regardless of the amount of investment from an SBIC and regardless of whether there are also non-SBIC investors. The SBA interim rule notes that in order to help potential borrowers identify other businesses with which they may be deemed to be affiliated under the common management … %%EOF 13 C.F.R. The interim final rule is available at: https://www.sba.gov/sites/default/files/2020-04/SBA%20IFR%202_1.pdf. Powers that go beyond what is necessary to protect the interest of minority investors, and provide the ability to exercise veto over the day-to-day operations of the company, are indicative of control. SBA will not give present effect to individuals’, concerns’ or other entities’ ability to divest all or part of their ownership interest in order to avoid a finding of affiliation. Visit Our U.S. Federal COVID-19 Actions Page, Coronavirus Resource: Government Contracts, Coronavirus Resource: Small Business and Franchise, Coronavirus Resource: U.S. Federal Guidance, 1,300+ attorneys, consultants and professionals. See our, How to Determine Eligibility Under SBA Affiliation Rules for the CARES Act Paycheck Protection Program | Faegre Drinker Biddle & Reath LLP, https://www.faegredrinker.com/-/media/images/build/highlight-card-images/covid-19-resource-center-highlight-card/coronavirusresourcecentersocial.jpg. The Faegre Drinker Biddle & Reath LLP website uses cookies to make your browsing experience as useful as possible. 13 C.F.R. What is an “affiliate”? Instead, it is the business’s responsibility to determine which entities (if any) are affiliates and determine the total number of combined employees. SBA treats such options, convertible securities and agreements as though the rights granted have been exercised. This questionnaire is designed to identify those small business applicants that meet SBA’s general eligibility criteria. Whether or not control is exercised is irrelevant, so long as the power to control exists. ELIGIBILITY INFORMATION REQUIRED FOR 504 SUBMISSION (PCLP) The P remier Certified . This means a business can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry. When the U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP) originally unfolded, one of the required certifications made by all borrowers on the application form … The employees of a former affiliate are not counted if affiliation ceased before the date used for determining size. The Lender is required to complete this form after the Applicant and Lender have reviewed the statements below and ma de a determination, based on the information received from the Applicant as to the accuracy of the response. For purposes of the determining the number of employees of an applicant to the PPP, the applicant is considered together with its affiliates, unless an exception or waiver applies. Footnotes for this article are available at the end of this page. 116-136 (H.R. The SBA estimates that 3.57 million PPP borrowers, comprising roughly $62 billion of PPP funds, will be eligible to use Form 3058S — based on an SBA PPP loan report, this … For determining affiliation based on equity ownership, a concern is an affiliate of an individual, concern or entity that owns or has the power to control more than 50% of the concern's voting equity. By browsing our site with cookies enabled, you are agreeing to their use. The SBA has indicated that lenders are not required to make an independent determination regarding the applicability of affiliation rules under 13 CFR § 121.301 to borrowers. OMB APPROVAL NO. 13 C.F.R. Affiliation arises when there is an identity of interest between close relatives, as defined in 13 CFR 120.10, with identical or substantially identical business or economic interests (such as where the close relatives operate concerns in the same or similar industry in the same geographic area). By submitting personally identifiable information via this form, you are opting-in to use of our first party cookies and accepting our use of your information. The CARES Act further specifies the SBA regulations that will be used as a baseline to determine eligibility, although the CARES Act has, in some instances, expanded these eligibility … 851 0 obj <>stream SBA Form 2234 (Part C) (09-16) Previous Editions Obsolete Page 1 of 9 . Control may arise through ownership, management, or other relationships or interactions between the parties. SIZ-4977 (Aug. 4, 2008) (finding the ability to block decisions regarding dividends, which are important decisions in the operation of the business, constituted negative control). To be eligible under this program, entities must have 500 employees or less, or meet the SBA’s industry-based “size standard” requirements for the applicable NAICS code (based either on number of employees or annual receipts). SBA counts all individuals employed on a full-time, part-time or other basis. If no individual, concern or entity is found to control, SBA will deem the board of directors, president or chief executive officer (CEO) (or other officers, managing members or partners who control the management of the concern) to be in control of the concern. SBA will consider the totality of the circumstances and may find affiliation even though no single factor is sufficient to constitute affiliation. If a company retains its full staff and payroll, all of its eligible expenses for up to eight weeks will be 100% forgiven. In addition to required forms that the SBA supplies, you and your business affiliates need to provide financial statements for your business. Although the CARES Act makes reference to a “covered period” (the period beginning on February 15, 2020, and ending on June 30, 2020), this period defines the period of time in which companies are eligible to receive covered loans, not the period of time to calculate the number of employees. Review Faegre Drinker Biddle & Reath LLP's cookies information for more details. SIZ-5211 (Mar. © 2020 Faegre Drinker Biddle & Reath LLP. H-GALDC works directly with the financial institution and business applicant to develop financing packages that meet SBA 504 Loan Program guidelines and credit criteria. Size Appeal of: Dhs Sys. Powers held by investors which fall under the category of investor protection (such as increasing or decreasing the size of the board, reclassifying interests, or the power to veto unusual or extraordinary actions) do not constitute control of the financial resources of the company, and therefore do not result in a finding of control for purposes of the affiliation rules. All other SBIR agencies may award not more than 15% of their SBIR funds to these small businesses. SBA’s Economic Disaster Loan Information. That sounds simple enough, but – again – the SBA has very specific ideas on what it means to own or control. The most basic example of affiliation is Common Ownership. In the alternative, a PPP applicant will also be eligible if it satisfies the existing statutory and regulatory definition of a “small business concern” under Section 3 of the Small Business Act, 15 U.S.C. 1. 14, 2011); Size Appeal of Carntribe-Clement 8AJV #1, LLC, SBA No SIZ-5357 (2012). Loans issued through the PPP are designed to provide a direct incentive for small businesses to keep their workers on the payroll. C.F.R. § 121.103(f). This helps demonstrate your ability to repay the loan. Where do I find SBA’s affiliation rules? What is an “affiliate” and how might the SBA’s affiliation rules impact PPP eligibility? Please read SBA’s SBIR/STTR size regulations, FAQs, and compliance guide for further information on affiliation to determine whether you or your business have any affiliates.Note: Even if you are affiliated with another company, you would still be eligible for the SBIR program … LLC, Appellant, SBA No. The information supplied by the applicant in response to that information request should be used by applicants as they assess whether they have affiliates that should be included in their number of employees reported. If a business has acquired an affiliate or been acquired as an affiliate during the applicable period of measurement or before the date on which it self-certified as small, the employees counted in determining size status include the employees of the acquired or acquiring business. : 3245-0346 EXPIRATION DATE: 12/31/2019 . § 121.103; however, the recent SBA guidance clarifies that the detailed affiliation standards contained in section 121.103 of the SBA regulations currently do not apply to PPP borrowers, because section 121.103(a)(8) provides that applicants in SBA’s Business Loan Programs (which include the PPP) are subject to the affiliation rule contained in 13 CFR § 121.301.3 The guidance appears to narrow the scope of the applicable affiliation rules, identifying only four tests based on control that apply to participants in the PPP. The exception allows the National Institutes of Health (NIH), Department of Energy (DOE) and the National Science Foundation (NSF) to award not more than 25% of their SBIR funds to such small businesses. Lenders began processing applications on April 3, 2020 and the PPP will run through June 30, 2020. As stated above, SBA determines whether an entity qualifies as a small business concern by counting its receipts, employees, or other measures including those of all its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. Notably, interested parties are still seeking additional guidance from SBA on the scope of the franchise exception. However, under the policy directive agencies may issue a certain percentage of their funding awards to small businesses that are majority-owned by multiple venture capital operating companies (VCOCs), hedge funds or private equity funds. The rules specify that the average number of employees of a business with affiliates is calculated by adding the average number of employees of the business with the average number of employees of each affiliate. See 13 C.F.R. �Al�N)���b˂��ځH9O�~잷 �g��N����10120��]:���9� ʹ� In the small business loan program, the SBA will typically defer to the conclusion of the lender as long as there is a good faith basis for concluding the entity meets the size standard and that affiliation does not exist. A business will also be eligible as a small business if it meets the SBA’s “alternative size standard” test, which requires that: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million. See Size Appeal of: Dhs Sys. 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 121.103(f)(1) (the right to prevent a quorum or otherwise block action by the board of directors or shareholders), the minority shareholder would no longer be an affiliate of the business (assuming there is no other relationship that triggers the affiliations rules). The SBA has also issued a GC Letter on PPP and a Frequently Asked Questions document. Businesses have the option to choose between three different size standards to determine size eligibility under the PPP. Statement of Personal History, SBA form 912--SBA has specific procedures for anyone required to provide a Personal History Statement who has been arrested. Affiliation arises where the CEO or president of the applicant concern (or other officers, managing members or partners who control the management of the concern) also controls the management of one or more other concerns. 1. The SBA interim rule notes that in order to help potential borrowers identify other businesses with which they may be deemed to be affiliated under the common management standard, the Borrower Application Form, SBA Form 2483, requires applicants to list other businesses with which they have common management. Investment companies, as defined under the 1940 Act, which are not registered under the 1940 Act because they are beneficially owned by less than 100 persons, if the company's sales literature or organizational documents indicate that its principal purpose is investment in securities rather than the operation of commercial enterprises. Businesses that receive financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. Section 1102(e) of the CARES Act permanently rescinds an amendment that SBA issued in February. This means the common investment affiliation rule and the economic dependence affiliation rule do not apply to the PPP. A minority shareholder may be found to have sufficient power to exercise negative control over a challenged concern through its ability to exercise a veto power over certain corporate actions, even though the minority shareholder lacks the affirmative ability to approve actions. Thus, despite the affiliation rules that generally apply to businesses owned in part by investment firms, if an SBIC has provided financial assistance to a business concern in any amount (including loans, debt with equity features, equity, guarantees and/or securities purchased from an underwriter), and that business is owned or controlled by one or more investment firms, all affiliation rules are waived. 13 C.F.R. SBA Publishes Interim Final Rule on Eligibility of Affiliates for Temporary Business Loan Programs: Paycheck Protection Program By Office of Advocacy On Apr 16, 2020 On April 15, 2020, the U.S. Small Business Administration (SBA) published an interim final rule (the Initial Rule) announcing the implementation Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act). A company can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union and Farm Credit System institution that is participating. 793 0 obj <> endobj SBA Guidelines: Affiliations and Loan Eligibility Tools At Prudent Lenders, we know that determining whether a small business client meets the U.S. Small Business Administration (SBA) definition of “small” isn’t always easy, even with the SBA’s published guidelines . Thus, small businesses in industries with size standards that exceed 500 employees may use the higher SBA size standards. The SBA looks at the totality of the circumstances and exercises subjective judgment in determining whether sufficient control exists to create affiliation. Disclaimer: Transmission of information to us via this feature does not establish an attorney-client relationship. Fill out the 7(j) Assistance Eligibility Self-Certification Form today to find out if you qualify for the SBA’s 7(j) Management & Technical Assistance Program. 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. Purpose of this form: The purpose of this form is to collect information about the Small Business Applicant ("Applicant") and its owners, the loan request, existing indebtedness, information about current or previous government financing, and certain other topics. The SBA has published SBA Form 3509 – Loan Necessity Questionnaire (For-Profit Borrowers) and SBA Form 3510 – Loan Necessity Questionnaire (Non-Profit Borrowers). The Small Business Administration (SBA) issued a second interim final rule (IFR) to clarify application of the affiliate rules to the SBA's Paycheck Protection Program (PPP) created under Title 1 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. : 3245-0348 . § 121.301(f)(6). 13 C… All rights reserved. Consider the following points when analyzing control of a company: For purposes of the PPP, only three express exceptions apply to the SBA’s affiliation standards: Organizations may also need guidance about the applicability of the general affiliation exceptions. Eligibility – Any small business operating in an eligible business allowed by the SBA and most non-profits that do not have available credit elsewhere Qualifications – Good credit history; Can demonstrate the ability to repay the loan; Can prove eligibility from economic loss; Loan $ Amount – up to $2M based upon the size and type of your business In MicroTechnologies, LLC d/b/a MicroTech, SBA No. § 121.103(a)(6). Franchises assigned a franchiser identifier code. The staff then processes, closes, and services the loan. See 85 FR 7622 (Feb. 10, 2020). Expiration Date: 0 4/17/2017 . SBA 504 Loan Program loans offer lower, fixed interest rates and longer, 20-year repayment terms. Program.1 For purposes of the determining the number of employees of an applicant to the Paycheck Protection Program, the applicant is considered together with its affiliates. § §121.106(b). Under the CARES Act, approximately $350 billion in forgivable loans for small businesses is available through the Paycheck Protection Program (PPP). Small businesses in the hotel and food services industries (have a NAICS code beginning with 72). The SBA regulations provide that 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. Under the PPP, loans of up to $10 million can be used to cover payroll, paid sick leave, insurance premiums, rent, utilities and mortgage payments. h�bbd```b``� "�@$3�d���`RD����`v���_"�T@� H�Q�H25O���D h�b```������@��(���q����,����������?���2�1�:uTp_f\�@�떆�3�-��JN�t�1�f��pt���j�. The SBA sets forth the following rules to determine a business’s number of employees: The SBA’s guidance also suggests that businesses may calculate their average employment over the same time period used to calculate their aggregate payroll costs. § 121.104(d) (as updated on January 6, 2019). It does not matter whether the control is exercised, so long as the power to control exists. 121.103(b)(1): “Business concerns owned in whole or substantial part by investment companies licensed, or development companies qualifying, under the Small Business Investment Act of 1958, as amended, are not considered affiliates of such investment companies or development companies.” This exception is in line with the exception in the CARES Act. The SBA’s general rule of affiliation is that two businesses will be considered affiliates if one owns or has the ability to control the other. The standard SBA employee calculation rule applies to eligibility under the PPP. �f�"�� Ro%�~�z�|�lD����\6@�†�1@�?�nYmX����������L\;$�="X"$8�X�¶``6�`m`�h`m ө@���U� ���X�uuA���`ph�wb|$#\�����$�¶��J�/��`���f�����>�g4h��WF��v � �10�j��Y? 13 C.F.R. § 121.301(f)(3). However, if a business has sold a segregable division to another business during the applicable period of measurement or before the date on which it self-certified as small, the employees used in determining size status will continue to include the employees of the division that was sold. These new nine-page forms require completion by each borrower (or each non-profit borrower, as the case may be) that, together with its affiliates (applying the SBA's affiliation rules applicable to the PPP), received a PPP … §121.301(f). In determining size, SBA considers stock options, convertible securities and agreements to merge (including agreements in principle) to have a present effect on the power to control a concern. If a small business can make a good faith claim that, based on the application of the existing affiliation rules, it meets the CARES Act size standard, it should provide its lender with all relevant information and allow the lender to make the call. § 121.103. �@�;�PeG uR h��WmO�6�+���N-���NH�wH@%��R��M�H����¿��Y؅���>��O�=��K��R1����z,��`i��K�BXzR��3X��@5 In your paperwork, you should include a current (dated within 90 days) financial overview statement, as well as financial statements for the past three years. Where SBA determines that interests should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be one are in fact separate. SIZ-5211 (Mar. SBA's affiliation rules confirm whether the … If “False”, complete the Affiliate Eligibility Addendum (Addendum C). 13 C.F.R. Complete the Affiliate Addendum (Addendum C) Applicant has no possible affiliates. endstream endobj startxref The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) allows certain eligible companies and individuals to obtain loans of up to $10 million or 2.5 times the average monthly payroll costs over the last year, whichever is less, from the Small Business Administration (“SBA”). If the size standard is number of employees, the method for determining size is the average number of employees of the business (including the employees of its domestic and foreign affiliates) based upon numbers of employees for each of the pay periods for the preceding completed 12 calendar months. Options, convertible securities and agreements that are subject to conditions precedent which are incapable of fulfillment, speculative, conjectural or unenforceable under state or federal law, or where the probability of the transaction (or exercise of the rights) occurring is shown to be extremely remote, are not given present effect. An individual, concern or other entity that controls one or more other concerns cannot use options, convertible securities or agreements to appear to terminate such control before actually doing so. As noted in the summaries above, the SBA has some discretion in determining control. Affiliation also arises where a single individual, concern or entity controls the management of the applicant concern through a management agreement. The affiliation rules may pose challenges for companies that have venture capital or private equity investors. %PDF-1.5 %���� Lƹ�`J�F�(�0,M�bL^k��� �aZ F�h��C#:{�e��i��z#�0��'~p����i6�W���=��/ˬ��m�`�c8`��-zV���d> �5�.F�Ç��K^��Jf��y�'���I6^���|V��=�ߝژBP�46�gӜ_�|��������O�Yl����B�2����x�3�O�lT�Ƹp~�=T!I��_���w�P��Ơ��Ţ�/�u�҈������1��j̐BK�7A�ѦR:=���K�h/�0���;� �m��>�m���n��/��޴�HcS��\�(�nI�6quWc�mS|������0%�d����G��9�_��lU����rU�eC�5� v�O��E*�#��_�ߔ��}���G����a����KQ�^��٠�s/S����d����S��T���͵���7?�b�aW�$b*��f1����e�W�k8�D;�sP�s$e]��46-�׶�����!�N���� Impact of SBA Affiliation Rules on Eligibilty for Paycheck Protection Loans and EIDLs under the CARES Act April 6, 2020 In response to the COVID-19… Agreements to open or continue negotiations toward the possibility of a merger or a sale of stock at some later date are not considered “agreements in principle” and are thus not given present effect. Version 50 10 5(D) – Revised 11-1-2011 3 The SBA issued additional guidance on the applicability of this loan program and the applicable affiliation rules.2 The CARES Act only references 13 C.F.R. 121.702. Do not send any information that you would have treated confidentially. Concerns and entities are affiliates of … The SBA’s GC Letter on PPP indicates that applicants and lenders should refer to the pre-2020 version of 13 C.F.R. Affiliation arising under stock options, convertible securities and agreements to merge. ���J�a�F1��CC��qX�qe�t8�W'r����� 748)). LLC, Appellant, SBA No. SBA Affiliation Rules for Calculating a Concern's Size. Following is a summary of the applicable affiliation tests. The SBA continues to issue new guidance on the PPP. 121.103(b)(5), which states in part that, for financial, management or technical assistance under the Small Business Investment Act of 1958, a business is not affiliated with the following investors: Venture capital operating companies, as defined in the U.S. Department of Labor regulations found at 29 CFR 2510.3-101(d). § 121.301(f)(1). This aggregation applies for the entire period of measurement, not just the period after the affiliation arose. CARES Act Frequently Asked Questions (FAQs) on Affiliate Rules for Small Businesses with PE / VC Sponsors The following document provides a high-level overview in the form of FAQs on the implications of the new Paycheck Protection Program under the CARES Act, FAQs from Treasury released on April 6, and Small Business Administration