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. See Size Appeal of: Dhs Sys. Affiliation also arises where a single individual, concern or entity that controls the board of directors or management of one concern also controls the board of directors or management of one of more other concerns. Small Business assistance training programs, help businesses to compete for federal government contracts. SBA Form 2234 (Part C) (09-16) Previous Editions Obsolete Page 1 of 9 . Generally, no single venture capital operating company, hedge fund or private equity firm may own more than 50% of the concern unless that single venture capital operating company, hedge fund or private equity firm qualifies as a small business concern that is more than 50% directly owned and controlled by individuals who are citizens or permanent resident aliens of the United States. 681). 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). OMB APPROVAL NO. 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”). 14, 2011); Novalar Pharm., Inc., Appellant, SBA No. 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”). 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. Instead, it is the business’s responsibility to determine which entities (if any) are affiliates and determine the total number of combined employees. 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. 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. 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. See 85 FR 7622 (Feb. 10, 2020). § 121.104(d) (as updated on January 6, 2019). SBA has a specific set of rules that explain when another person, business or entity is considered an affiliate for size purposes. The most basic example of affiliation is Common Ownership. 13 C.F.R. L enders P rogram (PCLP) Certified Development Company ( CDC ) completes this form to 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. The SBA’s Frequently Asked Questions (FAQs) document expressly states that the U.S. government will not challenge lender PPP actions that conform to this guidance, and to the PPP Interim Final Rule and any subsequent rulemaking in effect at the time. 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 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���� SBA Form 1919 (Revised 4/14) 1 OMB Control No. 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. Do not send any information that you would have treated confidentially. 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. If a company retains its full staff and payroll, all of its eligible expenses for up to eight weeks will be 100% forgiven. : 3245-0348 . 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. 14, 2011); Size Appeal of Carntribe-Clement 8AJV #1, LLC, SBA No SIZ-5357 (2012). : 3245-0346 EXPIRATION DATE: 12/31/2019 . § 121.103(a)(6). § 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. Loans issued through the PPP are designed to provide a direct incentive for small businesses to keep their workers on the payroll. The interim final rule is available at: https://www.sba.gov/sites/default/files/2020-04/SBA%20IFR%202_1.pdf. ���J�a�F1��CC��qX�qe�t8�W'r����� 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. § 121.301(f)(6). Affiliation arising under stock options, convertible securities and agreements to merge. 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 … All other SBIR agencies may award not more than 15% of their SBIR funds to these small businesses. Investment companies registered under the Investment Company Act of 1940, as amended (1940 Act). 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 The employees of a former affiliate are not counted if affiliation ceased before the date used for determining size. The SBA has also issued a GC Letter on PPP and a Frequently Asked Questions document. endstream endobj startxref 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). 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. It does not matter whether the control is exercised, so long as the power to control exists. What is an “affiliate” and how might the SBA’s affiliation rules impact PPP eligibility? This questionnaire is designed to identify those small business applicants that meet SBA’s general eligibility criteria. Complete the Affiliate Addendum (Addendum C) Applicant has no possible affiliates. 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. 13 C.F.R. 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. The SBA has published SBA Form 3509 – Loan Necessity Questionnaire (For-Profit Borrowers) and SBA Form 3510 – Loan Necessity Questionnaire (Non-Profit Borrowers). 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. Section 1102(e) of the CARES Act permanently rescinds an amendment that SBA issued in February. SBA will consider the totality of the circumstances and may find affiliation even though no single factor is sufficient to constitute affiliation. § 121.301(f)(3) 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 … See 13 C.F.R. If a business has not been in business for 12 months, the average number of employees is used for each of the pay periods during which it has been in business. 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. 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. %%EOF �@�;�PeG uR § §121.106(b). 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, SBA ELIGIBILITY QUESTIONNAIRE FOR STANDARD 7(a) GUARANTY ... III. 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. 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. Pursuant to 13 C.F.R. SBA Affiliation Rules for Calculating a Concern's Size. 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. LLC, Appellant, SBA No. 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 … 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. This helps demonstrate your ability to repay the loan. 1. 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 . In addition to required forms that the SBA supplies, you and your business affiliates need to provide financial statements for your business. This means a business can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry. 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 SBA’s GC Letter on PPP indicates that applicants and lenders should refer to the pre-2020 version of 13 C.F.R. 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. 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. SIZ-5211 (Mar. ELIGIBILITY INFORMATION REQUIRED FOR 504 SUBMISSION (PCLP) The P remier Certified . In order to have the full site experience, keep cookies enabled on your web browser. Lenders began processing applications on April 3, 2020 and the PPP will run through June 30, 2020. 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. 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. L. No. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. 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. Following is a summary of the applicable affiliation tests. C.F.R. 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 also information on SBA 8a annual report, SBA form 601 and SBA Form 1450. 13 C.F.R. �w2��b���L�����53-�d�L�Q��Rnc&. 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. § 121.301(f)(3). 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 … 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. 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. Affiliation based on identity of interest. See 13 C.F.R. 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. �Al�N)���b˂��ځH9O�~잷 �g��N����10120��]:���9� ʹ� The SBA has stated that, in general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. The SBA affiliation rules also create an exception under 13 C.F.R. 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). 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. 13 C.F.R. 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. Footnotes for this article are available at the end of this page. 793 0 obj <> endobj It is a very fact specific, case-by-case inquiry. Statement of Personal History, SBA form 912--SBA has specific procedures for anyone required to provide a Personal History Statement who has been arrested. 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 … 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. That sounds simple enough, but – again – the SBA has very specific ideas on what it means to own or control. h��WmO�6�+���N-���NH�wH@%��R��M�H����¿��Y؅���>��O�=��K��R1����z,��`i��K�BXzR��3X��@5 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. As noted in the summaries above, the SBA has some discretion in determining control. 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 … 632. § 121.103. 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. What is an “affiliate”? 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 … 13 C.F.R. 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 standard SBA employee calculation rule applies to eligibility under the PPP. h�bbd```b``� "�@$3�d���`RD����`v���_"�T@� H�Q�H25O���D §121.301(f). Size Appeal of: Dhs Sys. © 2020 Faegre Drinker Biddle & Reath LLP. All rights reserved. Notably, interested parties are still seeking additional guidance from SBA on the scope of the franchise exception. Lenders are permitted to rely on borrowers’ certifications. Businesses that receive financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. SBA’s rules on affiliation for its programs (except SBIR and STTR) are found at 13 C.F.R. In the small business loan program, the SBA will typically defer to the conclusion of the lender as long as there is a good faith basis for concluding the entity meets the size standard and that affiliation does not exist. SIZ-6039 (2019), the OHA considered the applicability of the former affiliate rule to the sale of a division within a company. Disclaimer: Transmission of information to us via this feature does not establish an attorney-client relationship. H-GALDC works directly with the financial institution and business applicant to develop financing packages that meet SBA 504 Loan Program guidelines and credit criteria. Control may arise through ownership, management, or other relationships or interactions between the parties. �f�"�� Ro%�~�z�|�lD����\6@�†�1@�?�nYmX����������L\;$�="X"$8�X�¶``6�`m`�h`m ө@���U� ���X�uuA���`ph�wb|$#\�����$�¶��J�/��`���f�����>�g4h��WF��v � �10�j��Y? 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. Franchises assigned a franchiser identifier code. Concerns and entities are affiliates of … 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. Affiliation also arises where a single individual, concern or entity controls the management of the applicant concern through a management agreement. This aggregation applies for the entire period of measurement, not just the period after the affiliation arose. The SBA continues to issue new guidance on the PPP. SBA counts all individuals employed on a full-time, part-time or other basis. Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19. Small businesses in the hotel and food services industries (have a NAICS code beginning with 72). § 121.301(f)(1). 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. 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