April 24, 2018

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — SBA’s Oversight of Affiliation Rule Attacked by Democrats in House Hearing

Tensions were elevated at last week’s House Small Business Committee hearing regarding SBA 7(a) and poultry loans.

The normally staid bipartisan proceedings were a little bit more lively as Ranking Minority Member Nydia Velázquez of New York sharply questioned SBA Associate Administrator Bill Manger over the agency’s oversight of “credit elsewhere” and “affiliation.”

When asked for a definition of affiliation Manger answered — “common ownership or common management.”

Velázquez wanted to know who at SBA signed off on this change. Manger played the previous administration card and said he would get back to her with a name.

That didn’t sit well with Velázquez who threatened to introduce legislation to define affiliation as SBA’s “original” stance of “economic dependence.”

Velázquez also zeroed in on “credit elsewhere” and wanted to know the standard lenders use for “credit elsewhere.” When Manger said he would have to get back to her she snapped, “You don’t know!” (See clip here)

What Does this Mean?

Also, SBA has told the Inspector General they will revisit this issue, so expect more guidance of following and documenting credit elsewhere in the future.

We’ll see if Velázquez introduces legislation, but I doubt it will go far — unless she becomes Chair come next January.

One surefire takeaway is SBA will continue to put lender’s feet to the fire to correctly interpret and document the credit elsewhere test.

Missouri Republican Blaine Luetkemeyer supported SBA and questioned the Inspector General’s understanding of how small business affiliations and franchise agreements work.

(Check out his great defense of SBA in tomorrow’s Coleman Report Update! podcast.)