SBA affiliation rule

Definition

The SBA rule adding commonly owned businesses together for the size test.

Why It Matters

A buyer who already owns other businesses can push a target over the size limit without realizing it, because the SBA adds affiliates in before deciding whether a deal qualifies. For an SBA loan the test has been ownership alone since May 2023, when the rule that made control an affiliation was removed. On a purchase the buyer's size and the target's are added together. An owner's other company is an affiliate when the owner holds more than half of both and both sit in the same three-digit NAICS subsector, with spouses' and minor children's stakes combined. A searcher who owns other things should check this before assuming a deal can be financed.

In numbers: A searcher who owns 60% of a 400-person company buys a 150-employee target in the same three-digit NAICS subsector, so the 550 combined employees exceed a 500-person size standard. The $4M 7(a) then stands only if the two pass the alternative test of $20M tangible net worth and $6.5M average net income.