SBA SOP 50 10 8, A.Ch1.D.4 — Affiliation
Verbatim text of SBA SOP 50 10 8 section A.Ch1.D.4 (Affiliation), effective 2025-06-01. 4 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, A.Ch1.D.4 — Affiliation — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 A.Ch1.D.4
4. Affiliation 13 CFR § 121.301 The Small Business Act defines a small business concern as one which is independently owned and operated, and which is not dominant in its field of operation. SBA interprets this statutory definition to require, in certain circumstances, the inclusion of other entities (“Affiliates”) owned by the applicant or an owner of the applicant in determining the size of the applicant. On April 10, 2023, SBA published the Final Rule on Affiliation and Lending Criteria for the SBA Business Loan Programs (88 FR 21074, effective May 11, 2023). This rule removed the principle of control, both affirmative and negative control, as establishing affiliation between entities. Accordingly, franchise, license or similar agreements no longer need to be reviewed for control. However, except for management agreements that are part of the franchise disclosure documents for a brand listed on SBA’s Franchise Directory, franchise, license, or similar agreements (e.g., management agreements) must be reviewed to determine whether they give someone other than the Applicant the sole discretion to manage the operations of the business, including decision-making over the employees, the finances and the bank accounts of the business, with no involvement by the owner(s) of the Applicant, because this would cause the Applicant to be an ineligible passive business. The following principles apply for the Business Loan, Disaster Loan, and Surety Bond Guarantee Programs: Affiliation Based on Ownership NAICS codes can be found at 13 CFR § 121.201, and a searchable database of industries and NAICS codes is located at naics.com. i. When the Applicant owns more than 50 percent of another business, the Applicant and the other business are affiliated. ii. When a business owns more than 50 percent of an Applicant, the business that owns the Applicant is affiliated with the Applicant. Additionally, if the business entity owner that owns more than 50 percent of the Applicant also owns more than 50 percent of another business that operates in the same 3- digit NAICS subsector as the Applicant, then the business entity owner, the other business and the Applicant are all affiliated. iii. When an individual owns more than 50 percent of the Applicant and the individual also owns more than 50 percent of another business entity that operates in the same 3-digit NAICS subsector as the Applicant, the Applicant and the individual owner’s other business entity are affiliated. iv. When the Applicant does not have an owner that owns more than 50 percent of the Applicant, if an owner of 20 percent or more of the Applicant is a business that operates in the same 3-digit NAICS subsector as the Applicant, the Applicant and the owner are affiliated. v. When the Applicant does not have an owner that owns more than 50 percent of the Applicant, if an owner of 20 percent or more of the Applicant also owns more than 50 percent of another business entity that operates in the same 3- digit NAICS subsector as the Applicant, the Applicant and the owner’s other business entity are affiliated.
SOP 50 10 8 A.Ch1.D.4.vi
vi. Ownership interests of spouses and minor children must be combined when determining amount of ownership interest. Ownership interests are not combined when spouses and minor children have individual ownership interests in different businesses. vii. When determining the percentage of ownership that an individual owns in a business, SBA considers the pro rata ownership of entities. For example, John Smith, Jane Doe, and Jane Doe, Inc., each own an interest in the Applicant. Jane Doe owns 15 percent of the Applicant, and she also owns 100 percent of Jane Doe, Inc. Jane Doe, Inc. owns 50 percent of the Applicant. SBA considers Jane Doe to own 65 percent of the Applicant. Affiliation Based on Stock Options, Convertible Securities, and Agreements to Merge i. For purposes of this subparagraph, SBA considers stock options, convertible securities, and agreements to merge (including agreements in principle) to have a present effect on the ownership of the entity. SBA treats such options, convertible securities, and agreements as though the rights granted have been exercised.
SOP 50 10 8 A.Ch1.D.4.vi.ii
ii. Agreements to open or continue negotiations towards 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.
SOP 50 10 8 A.Ch1.D.4.vi.iii
iii. 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. iv. SBA will not give present effect to individuals', concerns', or other entities' ability to divest all or part of their ownership interest to avoid a finding of affiliation. Determining the Concern's Size i. In determining the concern's size, SBA counts the receipts, employees (see 13 CFR § 121.201), or the alternate size standard (if applicable) of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. ii. Exceptions to Affiliation - For exceptions to affiliation, see 13 CFR § 121.103(b).
Operationalizing SBA SOP 50 10 8, A.Ch1.D.4 — Affiliation
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Source of record: https://claudeforcompliance.com/regs/sba-sop-a-ch1-d-4/
· register sba-sop-a-ch1-d-4 · Claude for Compliance. Free to read and download;
see regulatory updates and methodology.