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Affiliation and Lending Criteria for the SBA Business Loan Programs rule (2023)

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The Affiliation and Lending Criteria for the SBA Business Loan Programs rule is a significant rule issued by the U.S. Small Business Administration (SBA) effective May 11, 2023, that amended regulations to various SBA loan programs regarding lending criteria, loan conditions, and reconsiderations, among other provisions. SBA issued this rule pursuant to their authority under the Small Business Act.[1]

HIGHLIGHTS
  • Name: Affiliation and Lending Criteria for the SBA Business Loan Programs
  • Code of Federal Regulations: 13 CFR 120 and 121
  • Action: Final rule
  • Type of significant rule: Other significant rule

    • Timeline

    The following timeline details key rulemaking activity:

    Background

    The Small Business Administration (SBA), per its mission to assist and protect America's small businesses, determined that the changing economy necessitated revision of regulations for the 7(a) and 504 loan programs, according to the rule. SBA stated in the rule that its goal is to "streamline and modernize regulations regarding partial changes of ownership, lending criteria, hazard insurance requirements, and reconsiderations." SBA also simplified affiliation requirements for the 7(a) Loan Program, 504 Loan Program, Microloan Program, ILP Program, SBG Program, and Business Disaster Loan Programs (except for the COVID EIDL Disaster Loan Program).[1]

    Summary of the rule

    The following is a summary of the rule from the rule's entry in the Federal Register:

    “ The U.S. Small Business Administration (SBA or Agency) is amending various regulations governing SBA's 7(a) Loan Program and 504 Loan Program, including regulations on use of proceeds for partial changes of ownership, lending criteria, loan conditions, reconsiderations, and affiliation standards, to expand access to capital to small businesses and drive economic recovery. The amendments to affiliation standards will also apply to the Microloan Program, Intermediary Lending Pilot Program, Surety Bond Guarantee Program, and the Disaster Loan programs (except for the COVID Economic Injury Disaster Loan (EIDL) Disaster Loan Program).[1][2] ”

    Summary of provisions

    The following is a summary of the provisions from the rule's entry in the Federal Register:[1]

    “

    Specifically, SBA is amending 13 CFR 120.130 on “Restrictions on uses of proceeds”; 13 CFR 120.150 on “What are SBA's lending criteria?”; 13 CFR 120.160 on “Loan conditions”; 13 CFR 120.193 on “Reconsideration after denial”; 13 CFR 120.202 on “Restrictions on loans for changes of ownership”.

    Regarding 13 CFR 120.130 on “Restrictions on uses of proceeds” and 13 CFR 120.202 “Restrictions on loans for changes of ownership” except for where an employee stock ownership plan or Qualified Employee Trust (ESOP) purchases a controlling interest (51 percent or more) in the employer small business from the current owner(s), SBA's current regulations do not permit 7(a) loan proceeds to be used for partial changes of ownership. Therefore, SBA is amending restrictions on borrowers using 7(a) loan proceeds to effect partial changes of ownership to assist small businesses and to expand pathways to ownership.

    Regarding 13 CFR 120.150 on “What are SBA's lending criteria?” SBA stated that streamlining and modernizing regulations on lending criteria and loan conditions for its 7(a) and 504 Loan Programs can better position the Agency and participating lenders to meet the needs of America's small businesses, create jobs, assist with recovery from the COVID–19 pandemic, and grow the economy, fueling American entrepreneurship. SBA is amending this section to provide capital in the form of 7(a) and 504 loans to more small businesses.

    Regarding 13 CFR 120.193 on “Reconsideration after denial” SBA is amending the process for reconsideration after denial of a loan application or loan modification request in its 7(a) and 504 Loan Programs to provide the Director, Office of Financial Assistance, with the authority to delegate decision making to designees. SBA is also amending the regulation to allow the Administrator, solely within their discretion, to review these matters and make the final agency decision on reconsideration. Such discretionary authority of the Administrator would not create additional rights of appeal on the part of an applicant not otherwise specified in SBA regulations.

    Further, SBA is simplifying 13 CFR 121.301, which sets forth the principles for determining affiliation in the 7(a) Loan Program, 504 Loan Program, Microloan Program, ILP Program, SBG Program, and Business Disaster Loan Programs (except for the COVID EIDL Disaster Loan Program). Specifically, SBA is removing the provisions on affiliation arising from management and control, franchise or license agreements, and identity of interest and to streamline affiliation determinations based on ownership. SBA is streamlining the provisions on affiliation to remove paragraph (f)(5), affiliation based on franchise and license agreements. Because SBA is removing the principle of control of one entity over another from its affiliation consideration, this paragraph is no longer needed. Upon the effective date of this rule, SBA will no longer publish the SBA Franchise Directory. This final rule redefines affiliation for all these programs, thereby simplifying affiliation determinations.[2]

    		”

    Significant impact

    See also: Significant regulatory action

    Executive Order 12866, issued by President Bill Clinton (D) in 1993, directed the Office of Management and Budget (OMB) to determine which agency rules qualify as significant rules and thus are subject to OMB review.

    Significant rules have had or might have a large impact on the economy, environment, public health, or state or local governments. These actions may also conflict with other rules or presidential priorities. Executive Order 12866 further defined an economically significant rule as a significant rule with an associated economic impact of $100 million or more. Executive Order 14094, issued by President Joe Biden (D) on April 6, 2023, made changes to Executive Order 12866, including referring to economically significant rules as section 3(f)(1) significant rules and raising the monetary threshold for economic significance to $200 million or more.[1]


    The text of the Affiliation and Lending Criteria for the SBA Business Loan Programs rule states that OMB deemed this rule significant, but not economically significant:

    “ The Office of Management and Budget has determined that this rule is a 'significant regulatory action' under Executive Order 12866.[2] ”

    Text of the rule

    The full text of the rule is available below:[1]

    See also

    External links

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Federal Register, "Affiliation and Lending Criteria for the SBA Business Loan Programs," January 17, 2024.
    2. ↑ 2.0 2.1 2.2 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
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