October 31, 2022
Main Street Monday – SBA Proposes Eliminating Tax Returns From Family Members
In a proposed rule released by SBA last week, they mention removing a paragraph about affiliation based on identity of interest “because SBA believes it is inherently unfair and impractical to require close relatives to provide multiple years’ worth of financial statements for review by a lender and by SBA when the close relative is not a principal of the applicant business.” They believe that this requirement may cause applicants to turn to alternative predatory lending, so they are planning to remove it.
In addition, SBA is seeking to revise affiliation provisions to simplify and streamline the application process. One aspect they specifically addresses was to remove the principle of control of one entity over another as a separate basis for finding affiliation. The removal of this principle causes revisions to other affiliation standards:
• Expand the definition of “ownership” to clarify the thresholds of ownership that SBA considers an applicant to be affiliated with an individual or other business.
• Remove affiliation based on management because SBA believes they should not interfere with a business owner’s right to enter into a service agreement with a management company.
• Remove affiliation based on franchise and license agreements.
Lenders will still be expected to examine franchised businesses for affiliation based on ownership and ensure the applicant meets the loan program’s requirements.
The SBA’s proposed rule currently has a comment period that will be open until December 27, 2022. You can submit a comment here.
SBA Proposed Rule