§ 126.200(b)(1) to allow indirect ownership by U.S. citizens of companies in the HUBZone program. These rules provide that the maximum amount of compensation that can be counted towards forgiveness for an individual with any ownership … SBIR/STTR size and ownership regulations were revised on … On March 26, 2018, the U.S. Small Business Administration (SBA) issued a direct final rule that changed the wording of 13 C.F.R. On Oct. 2, 2020, the Small Business Administration (SBA) issued SBA Procedural Notice Control No. SBA Rules On SDVOSB Ownership And Control. The SBA goes on to state that prior to its 8/24 Rule, its position was that any individual who had held any interest in a borrower was deemed to be an “owner”: “There is no exception in the rule based on the owner-employee’s percentage ownership”. Loan proceeds from a SBA 7(a) loan may not be used to purchase a portion of a business or a portion of another owner's interest in a business. Like most government programs, SBA loan programs have plenty of rules. In a recent decision, the U.S. Court of Federal Claims condemned the SBA’s SDVOSB unconditional ownership requirements, while holding that the SBA was within its legal rights to impose those requirements on the company in question. The 8(a) Program regulations will undergo some significant changes as part of the major final rule recently released by the SBA, and effective August 24, 2016.. SBA Clarifies Rules Regarding PPP Loans and Changes of Ownership In a recently issued procedural notice, the Small Business Association (“SBA”) addressed a lingering question of borrowers and lenders related to the Paycheck Protection Program (“PPP”) process: What procedures are required for changes of ownership of an entity that has […] The SBA’s general rule of affiliation is that two businesses will be considered affiliates if one owns or has the ability to control the other. The Small Business Administration (SBA) has issued new guidance relating to a change of ownership of a business entity that has received a tax-favored loan under the Paycheck Protection Program (PPP). SBREFA requires that agencies publish compliance guides for all rules with a significant small business impact. We have no data on the number of firms that this rule will be impact, but the number is very small. SBA Clarifies Transfer of Ownership Rules for Businesses Receiving PPP Loans. The SBA’s strict SDVOSB ownership rules can produce “draconian and perverse” results, but are nonetheless legal, according to a federal judge. On August 24, the Small Business Administration (SBA) issued an Interim Final Rule (IFR) that, for the first time, sets a de minimis rule for Paycheck Protection Program (PPP) loan forgiveness for owner-employees who own less than 5% of a corporation. SBA loans can be a great way to finance a small business acquisition. In a recent decision, the U.S. Court of Federal Claims condemned the SBA’s SDVOSB unconditional ownership requirements, while holding that the SBA was within its legal rights to impose those requirements on the company in question. Deals for which prior SBA approval of a change of ownership is required On March 26, 2018, the U.S. Small Business Administration (SBA) issued a direct final rule that changed the wording of 13 C.F.R. In the recently issued Analytic Strategies, Inc., SBA No. So, in the view of the agency, the new rule is a significant relaxing of the original rule. SBA’s final rule amends the definitions applicable to SDVOSBs by incorporating language from VA’s regulations and SBA’s 8(a) program, including definitions for “surviving spouse,” “daily business operations,” “negative control,” “participant,” and “uncontrolled ownership,” among others. The SBA’s strict SDVOSB ownership rules can produce “draconian and perverse” results, but are nonetheless legal, according to a federal judge. The SBA has now followed suit—in a final rule published today, the SBA has amended its eligibility rules for SDVOSBs.These rules provide important clarity into SDVOSB eligibility going forward. The SBA does not see this as lowering the limit—rather, the agency believes the prior ruling applies to any ownership, no matter how miniscule. The U.S. Small Business Administration (SBA) released a procedural notice (the Notice) on October 2, 2020, that describes the process and requirements that Paycheck Protection Program (PPP) borrowers and lenders must follow when ownership of the PPP borrower is changing. That sounds simple enough, but – again – the SBA has very specific ideas on what it means to own or control. The most basic example of affiliation is Common Ownership. Earlier this week, Steve updated SmallGovCon readers on a very important SDVOSB eligibility change: beginning October 1, the VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs. In this post, I summarize the highlights of the rules for SBA 7(a) business acquisition loans. While prior SBA approval is not required for the types of transactions described above, additional requirements apply, including PPP lender approval, as described below. Nevertheless, the SBA Area Office held that Mr. Otten controlled IWT by virtue of a special SBA affiliation rule, which creates a legal presumption that a minority owner controls a company when the company has no majority owner, and the minority owner in question owns a share that is equal or approximately equal in size to the next largest shares. The stated purpose of the rule change is to align more accurately the rule with the underlying statutory authority. 10/16/2018 by Gretchen M. Ostroff. Further, SBA's current rules do not ignore ESOPs when determining ownership, which means firms that are majority owned by ESOPs are not eligible for SDVO set-asides or sole source awards. The IFR also provides additional guidance on PPP loan forgiveness of certain nonpayroll costs. The Small Business Administration (SBA) issued a Direct Final Rule on March 26, 2018 that appears to address a specific holding of SBA’s Office of Hearings and Appeals (OHA) related to small business recertification rules. The U.S. Small Business Administration (the “SBA”) recently provided much-needed guidance in the form of a Procedural Rule to small businesses that received Paycheck Protection Program (“PPP”) loans during the COVID-19 pandemic and desire to engage in a “change of ownership” as defined below.. The U.S. Small Business Administration ’s (the U.S. SBA) PPP loans are generally only available to businesses with fewer than 500 employees. See 13 CFR 120.202. Here at SmallGovCon, we’ve already covered big changes to the SDVOSB Program and HUBZone Program brought about by the new SBA rule. ... Due to the VA’s recent elimination of its own eligibility requirements and corresponding adoption of SBA’s rules on eligibility, the recent changes to the SBA rules impact eligibility determinations under both programs. These guides must explain in plain language how the firms can comply with the regulations. There are three key sources of information about SBA loan rules… The lender may approve a change in ownership without prior SBA approval for changes structured as a sale or transfer of common stock or other ownership interest, as a merger or as an asset sale. The PPP lender must notify the SBA within five business days of the completion of a transaction and is required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied. If SBA consent is required, the PPP lender is required to submit certain documents to the SBA, including documents relating to the transaction and information about the buyer and its ownership. The IFR is effective immediately. (d) SBA determines the eligibility of an acquiring Participant under paragraph (b)(2) of this section by referring to the items identified in § 124.507(b)(2) and deciding whether at the time of the request for waiver (and prior to the transaction) the acquiring Participant is a responsible and eligible concern with respect to each contract for which a waiver is sought. Additionally, some changes in ownership may require SBA approval, with the SBA having 60 calendar days to review and provide a determination of its approval. Posted by Ann Bond, CPA on Oct 8, 2020 9:35:16 AM Tweet; There has been no shortage of questions regarding the Paycheck Protection Program (PPP) loan program funded under the CARES Act in April. However, SBA 7(a) loan proceeds may be used to purchase business assets or interest that result in a complete change of ownership. In calculating the number of employees to meet this employee limit, a business must include the employees of any companies that it is “affiliated” with under the U.S. SBA’s rules. There is no exception in the rule based on the owner-employee’s percentage of ownership. There are slightly different rules for determining ownership changes in publicly traded PPP borrowers. The new guidelines allow for a change of ownership to be achieved through an asset purchase, a stock purchase or a stock redemption[1]. The new rules lift this restriction and greatly simplify the requirements governing change of ownership transactions for SBA lenders. 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