The SBA’s Final Rule on Affiliation and Lending Criteria for the SBA Business Loan Programs (88 FR 21074, click here to read) became effective on May 11, 2023. Implementation of the Final Rule is set forth in SBA Procedural Notice, Control No.: 5000-846607 (click here to read).
Among the recent changes to the SBA Business Loan Programs, the SBA now limits the determination of “affiliation” between an SBA loan applicant, and other entities, to the following principles (as more fully described in the aforementioned Final Rule and Procedural Notice):
- Affiliation Based on Ownership; and
- Affiliation Based on Stock Options, Convertible Securities, and Agreements to Merge.
The Final Rule also removes the following affiliation factors previously set forth in 13 CFR 121.301 (f):
- Affiliation Based on Management;
- Affiliation Based on Identity of Interest; and
- Affiliation Based on Franchise and License Agreements.
In light of the elimination of the aforementioned affiliation factors, effective May 11, 2023, the SBA ceased publishing the SBA Franchise Directory, and SBA Lenders are no longer required to enter a franchise identifier number into E-Tran.
Regardless of the rule changes, SBA Lenders are still required to conduct a thorough review of all franchise agreements, license agreements and other similar agreements to ensure that applicants meet all applicable SBA eligibility (such as the prohibition against businesses that restrict patronage or have discriminatory hiring practices), collateral, and credit underwriting requirements (for example, if the application involves a franchise, the Lender must review any credit information provided such as the number of failed franchisees and cash flow projections provided by the franchisor).
If your lending institution has questions regarding any of the recent SBA rule changes, please contact us at SBAQuestions@JellumLaw.com.