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. For purposes of this provision and in order to facilitate tracking of the number of contract awards made to a joint venture, a joint venture: Must be in writing and must do business under its own name; must be identified as a joint venture in the System for Award Management (SAM); may be in the form of a formal or informal partnership or exist as a separate limited liability company or other separate legal entity; and, if it exists as a formal separate legal entity, may not be populated with individuals intended to perform contracts awarded to the joint venture (i.e., the joint venture may have its own separate employees to perform administrative functions, but may not have its own separate employees to perform contracts awarded to the joint venture). the Surety Bond Guarantee. The U.S. Small Business Administration (SBA) is issuing this guidance to specify the process by which SBA will review contracts entered into by loan applicants in SBA’s financial assistance programs for an affiliation exception under 13 CFR § 121.301(f)(4)(iv)(B) (effective March 11, 2020). See 13 CFR § 121.103(a)(8). @����8�5�#k�ȚF9ľ���q��v��͆r���a#w�]q����L�5�[y�YؖK�"��= ��������m���������O�n�A������j�&D�#n%��֒�B4�-֍n+�(C�T�Ԓ���u4����z�K�r);\��A.U��ћ�_eiޡ����FH_�,�Z�matP�Pqv5�������h� BLUF –Secular nonprofits are subject to standard SBA affiliation rules under 13 CFR 121.301(f); faith-based organizations are largely exempt from those rules. h�bbd``b`�@�� H��@��$!$�f`bd��``$���x�@� ) If a faith-based organization indicates any relationship that may pertain to affiliation, such as ownership of, ownership by, or common management with any other organization, on or in connection with a loan application, and if the faith-based organization applying for a loan falls within the terms of the exemption described in paragraph (b)(10)(i) of this section with respect to that relationship, the faith-based organization may indicate on a separate sheet that it is entitled to the exemption. A PPP loan applicant is an affiliate of an individual, concern or entity that owns or has the power to control more than 50 percent of the business’s voting equity. 501(c)); (v) Investment companies registered under the Investment Company Act of 1940, as amended (1940 Act) (15 U.S.C. On April 2, Joint Venture AB submits an offer for Solicitation 1. (8) For applicants in SBA's Business Loan, Disaster Loan, and Surety Bond Guarantee Programs, the size standards and bases for affiliation are set forth in § 121.301. A. 414(m)(6)(A). In addition, once award is made, employee assignments and the logistics for contract performance must be controlled by the specific subsidiary company and should not be performed at a holding company or parent entity level. Small business concerns owned and controlled by ANCs are eligible for participation in the 8(a) program and must meet the eligibility criteria set forth in § 124.112 to the extent the criteria are not inconsistent with this section. On May 22, year 2, XY submits an offer for Solicitation 1. (7) For SBA's Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, the bases for affiliation are set forth in §121.702. SBA defines the terms affiliation and affiliates in 13 CFR 121.103, which has general coverage and references to other SBA affiliation rules. Four tests for affiliation based on control apply to participants in the Paycheck Protection Program.1For purposes of the determining the number of employees of an applicant to the Paycheck Protection Program, the applicant is considered together … An ostensible subcontractor is a subcontractor that is not a similarly situated entity, as that term is defined in § 125.1 of this chapter, and performs primary and vital requirements of a contract, or of an order, or is a subcontractor upon which the prime contractor is unusually reliant. § 121.301(f)(8). Under SBA’s affiliation rules for the financial assistance programs, SBA may find a loan applicant to be affiliated … Because two years have passed since the date of the first contract award, after December 19, year 3, XY cannot receive an additional contract award. before actually doing so. endstream endobj 15 0 obj <> endobj 16 0 obj <> endobj 17 0 obj <>stream They may be involved in assisting with preparing the generic part of an offer, but the specific subsidiary that intends to ultimately perform the contract must control the technical and contract specific portions of preparing an offer. (4) Business concerns which lease employees from concerns primarily engaged in leasing employees to other businesses or which enter into a co-employer arrangement with a Professional Employer Organization (PEO) are not affiliated with the leasing company or PEO solely on the basis of a leasing agreement. (1) Parties to a joint venture are affiliates if any one of them seeks SBA financial assistance for use in connection with the joint venture. However, the PPP Affiliation Guidance confirms that "the detailed affiliation standards contained in section 121.103 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." See appendix A to this part for a sample “Addendum A”, but the format need not be used as long as the substance is the same. SBA's. Firm A has been in business for 9 months and has two contracts. (i) Venture capital operating companies, as defined in the U.S. Department of Labor regulations found at 29 CFR 2510.3-101(d); (ii) Employee benefit or pension plans established and maintained by the Federal government or any state, or their political subdivisions, or any agency or instrumentality thereof, for the benefit of employees; (iii) Employee benefit or pension plans within the meaning of the Employee Retirement Income Security Act of 1974, as amended (29 U.S.C. SBA treats such options, convertible securities, and agreements as though the rights granted have been exercised. Absent other connections between A and B, the presumption of affiliation between A and B is rebutted because A is a new firm. %%EOF (1) 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. 14 0 obj <> endobj (4) A contractor and its ostensible subcontractor are treated as joint venturers for size determination purposes. The applicable regulation states that affiliation may arise among two or more persons with an identity of interest. However, the PPP Affiliation Guidance issued on April 3, 2020 confirmed that "the detailed affiliation standards contained in section 121.103 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." • Myth 3: A contractor can create a small-business start-up company and funnel subcontracts to it or use it to pursue prime contracts set aside for small businesses with impunity. (6) In determining the concern's size, SBA counts the receipts, employees, or other measure of size 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. § 121.103. SBA affiliation rules require the JV agreement to specify the roles and responsibilities of the SBA joint venture partners, including how the joint venture will comply with the requirement of 13 CFR 124.513 (d) that the 8 (a) BD Participant perform at least 40% of the company’s work. (C) Business development may include both services that could be considered “common administrative services” under the exception to affiliation and those that could not. (2) SBA may presume an identity of interest based upon economic dependence if the concern in question derived 70% or more of its receipts from another concern over the previous three fiscal years. Once a joint venture receives one contract, SBA will determine compliance with the three awards in two years rule for future awards as of the date of initial offer including price. In particular, while 13 CFR 121.301 mirrors many rules of 13 CFR 121.103, it purposefully omits the following rules of 13 CFR 121.103: (a) “SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists.” 13 CFR 121.103 (a) (2); (b) “Control may be affirmative or negative. endstream endobj startxref (6) A firm that has an SBA-approved mentor-protégé agreement authorized under § 124.520 or § 125.9 of this chapter is not affiliated with its mentor firm solely because the protégé firm receives assistance from the mentor under the agreement. Therefore, Company Z is deemed to have more than 500 employees, together with … SBA affiliation and the importance of maintaining SBA size rules are also very important for small business loan programs and grant programs. (i) Affiliation based on franchise and license agreements. “ [T]he SBA’s affiliation rules, including those set forth in 13 CFR part 121, do not apply to the relationship of any church, convention or association of churches, or other faith-based organization or entity to any other person, group, organization, or entity that is based on a sincere religious teaching or belief or otherwise constitutes a part of the exercise of religion.” (B) Contract administration services include both services that could be considered “common administrative services” under the exception to affiliation and those that could not. Business Affiliation Rule (13 CFR 121.103) The following is subject to additional SBA guidance and clarification of the new PPP SBA 7(a) loan program. Thus, Firm B accounts for over 70% of Firm A's receipts. 80a-1, et seq. On July 13, Joint Venture AB submits an offer for Solicitation 3. Instead, it is the business’s responsibility to determine which entities (if any) are affiliates and determine the total number of combined employees. Outside of a few exceptions listed in the CARES Act and noted below, affiliation must be considered when evaluating eligibility for SBA loans. (i) The relationship of a faith-based organization to another organization is not considered an affiliation with the other organization under this subpart if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion. BLUF –Secular nonprofits are subject to standard SBA affiliation rules under 13 CFR 121.301(f); faith-based organizations are largely exempt from those rules. The terms “church” and “convention or association of churches” have the same meaning that they have in 26 U.S.C. These size standards are set forth in 13 CFR 121.201. The rule provides that concerns and entities (3) Business concerns which are part of an SBA approved pool of concerns for a joint program of research and development or for defense production as authorized by the Small Business Act are not affiliates of one another because of the pool. (2) 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. In applying for a loan under the Paycheck Protection Program (PPP), a faith-based organization may make all necessary certifications with respect to common ownership or management or other eligibility criteria based upon affiliation, if the organization would be an eligible borrower but for application of SBA affiliation rules and if the organization falls within the terms of the exemption described in paragraph (b)(10)(i) of this section. At some point, however, such a longstanding inter-relationship or contractual dependence between the same joint venture partners will lead to a finding of general affiliation between and among them. Pursuant to the Updated Affiliation Guidance, however, PPP borrowers can test affiliation using the more narrow affiliation rules of 13 CFR 121.301. 636(a)(36)(D) are satisfied for any faith-based organization having not more than 500 employees (including individuals employed on a full-time, part-time, or other basis) that pays Federal payroll taxes using its own Internal Revenue Service Employer Identification Number (EIN) or that would support a deduction under the second sentence of 26 U.S.C. h�Ė[o�:�� April 3, 2020. 23 0 obj <>/Filter/FlateDecode/ID[<319D5E42A70910CC120BBBF60BDDDA90><0B4460149FF30043A36512B74058916B>]/Index[14 24]/Info 13 0 R/Length 63/Prev 47986/Root 15 0 R/Size 38/Type/XRef/W[1 2 1]>>stream financial assistance programs, excluding. Link to an amendment published at 85 FR 66178, Oct. 16, 2020. In addition, the eligibility criteria set forth in 15 U.S.C. (1) A person (including any individual, concern or other entity) that owns, or has the power to control, 50 percent or more of a concern's voting stock, or a block of voting stock which is large compared to other outstanding blocks of voting stock, controls or has the power to control the concern. 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. The Small Business Administration (SBA) is publishing this rule to rescind the regulations published on February 10, 2020, in the interim final rule (IFR) titled, ``Express Loan Programs; Affiliation Standards'' (Express IFR). Affiliation arising under stock options, convertible securities, and agreements to merge. On June 6, Joint Venture AB submits an offer for Solicitation 2. 1141j), are not considered affiliated with the cooperative by virtue of their membership in the cooperative. The specific affiliation rule for SBA's financial assistance programs is set forth in 13 CFR § 121.301. SBA affiliation and the importance of maintaining SBA size rules are also very important for small business loan programs and grant programs. The regulations are available online at http://www.ecfr.gov. 1 That confusion focused on whether to conduct “affiliation” analysis under Section in Title 13 CFR §121.301 (“Section 301(f)”) or §121.103 – the right answer is Section 301(f)). W9��� This is consistent with SBA regulations in effect prior to the enactment of the CARES Act. 512(b)(12) if the organization generated unrelated business taxable income. A “key employee” is an employee who, because of his/her position in the concern, has a critical influence in or substantive control over the operations or management of the concern. A small business concern as defined in section 3 of the Small Business Act (15 USC 632), and subject to SBA’s affiliation rules under 13 CFR 121.301(f) unless specifically waived in the Act; B. within a. labor. The SBA’s Second Interim Final Rule provides its reasoning for exempting faith-based organizations from the SBA’s affiliation rules and amends the text of 13 CFR 121.103(b) to account for the religious exemption. You just learned about: Normal Affiliation Rules For more information, check out this related resource: Funding a Business the. 1 13 CFR 121.301(f), 121.103(f) (2). On June 19, year 2, XY receives a second contract responding to Solicitation 1. At the proposal or bid preparation stage of business development, the appropriate subsidiary company for the opportunity has been identified and a representative of that company must be involved in preparing an appropriate offer. Under SBA’s affiliation rules, 13 CFR 121.301(f)(1) and (3), Company Y and Company Z are affiliates of one another because they are under the common control of Company X, which wholly owns both companies. That sheet may be identified as addendum A, and no further listing of the other organization or description of the relationship to that organization is required. (3) Exception to affiliation for certain joint ventures. Department of. Small business concerns owned and controlled by ANCs are eligible for participation in the 8(a) program and must meet the eligibility criteria set forth in § 124.112 to the extent the criteria are not inconsistent with this section. 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