SBA Guidelines: Affiliations and Loan Eligibility

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. This is particularly true when a small business applicant has an affiliation with other businesses and/or entities.

For our partners, the easiest and most efficient way to determine if a small business is considered an affiliate is to talk to our team. As a leading lender service provider (LSP), we understand the nuances of SBA guidelines, including their complex affiliation rules. We’re available to help whenever you or your small business clients need assistance.

In addition to always making ourselves available to talk through a file, we’ve developed an affiliation summary to help clarify several of the SBA’s basic points on this topic.

How does the SBA define “affiliation”?

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. The SBA has two primary concerns when it comes to business affiliations:

1. As a federal agency that’s focused on benefiting small businesses, the SBA looks at how affiliation(s) impact the qualifying size standards of a business.
2. As the entity offering the actual guarantee on small business loans, the SBA investigates how affiliations impact the applicant business’s financial and management control and, specifically, its ability and likelihood to repay a loan.

Many businesses clearly qualify as “small” based on the number of employees, annual revenue or other measures. However, when a business has an affiliation, it can be more challenging to determine whether the applicant still qualifies for SBA loans. To paraphrase the SBA’s definition of “affiliation:”

When one business has financial or managerial control of an applicant business, or when a third-party (such as an investor) has the legal power to control the applicant business, an affiliation likely exists. How that control can take many forms in addition to ownership and management including, but not limited to, stocks and shareholder agreements.

Prudent Lenders is here to help

Our teams help lenders and their small business clients determine whether an affiliation exists, as well as its potential impact on eligibility with these three steps:

Step 1: Identify potential affiliation triggers

Our team collects and evaluates applicant information from personal tax returns, including the Schedule C and Schedule E, and the Prudent Lenders Affiliate Disclosure document.

Step 2: Collect follow-up information

Depending on the outcomes from Step 1, we create a checklist of additional items and information needed to determine eligibility, making it easier for your clients to (only) provide the appropriate information thus saving your team time and energy.

Step 3: Analyze

We analyze the information collected in Step 2 to satisfy SBA requirements, taking the affiliation guesswork out of the process.

Benefit from our experience and insight

Prudent Lenders simplifies the SBA loan process for our partners. Contact us today to discover the many ways we can help build your small business lending portfolio by offering SBA loan programs to the communities you serve.