SBA Retreats on Affiliation Rule Reform, Eliminates Personal Resource Test


January 8, 2014

By Bob Coleman
Editor, Coleman Report

ArchivesandRecordsLogoTomorrow, SBA will announce it is withdrawing the proposal to loosen its small business affiliation standard rule and eliminate the the personal resource test.

SBA will eliminate the personal resource test in about 30 days. SBA will no longer require that the personal resources of owners be used to reduce the financing package. SBA will defer to the lender’s judgment if the loan structure is in compliance with “prudent” lending practices.

SBA will not modify it’s affiliation rule. The proposal would have allowed entrepreneurs to invest in a new business, and not be required to guarantee the loan and have the loan amount count against the maximum $5 million cap.

The SBA writes, “Among the comments were that this standard would leave too much gray area and might not be consistently applies, and that it would be preferable to have a black and white test; that this standard is vague and open-ended; and that it would subject lender decisions to more scrutiny and second-guessing than currently occurs. In addition, many commenters expressed concern that the proposed six-page Applicant Affidavit on Affiliation was far too complicated for the typical applicant to complete without the extensive assistance of an attorney, a CPA, and/or the CDC.”

Finally, the new rule adopts a number of CDC governance changes. All are common sense changes and NADCO will be providing guidance to its members on the changes. However, if you are a CDC board member you must become aware of the changes. In fact, you will be required to personally certify to SBA each year you are aware of your board memeber responsibilities demanded by SBA for the CDC.

UPDATE: The final rule is scheduled to be published in tomorrow’s Federal Register. However, we note the link has been taken down and replaced with a statement the document has been withdrawn by SBA.

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