The Definition of an Affiliate Under the SBA

It is important to learn about one of the various ways businesses can be considered an affiliate under SBA, and two of the reasons that being an affiliate is important.

The reason that the affiliate determination is important is two-fold, the first being that a business applicant must meet the size standard requirements as a small business in order to qualify for a SBA loan. The second reason affiliation is important has to do with the total amount that can be borrowed by the business/guarantor(s) and affiliates.

The maximum that can be borrowed under the SBA 7a program is $5,000,000 with the guaranteed portion no more than $3,750,000. In simplifying the standard definition referred to as a Totality of Circumstances: if my father owns a hotel and I own a hotel and my sister owns a hotel – all three are considered affiliates regardless of whether or not my sister or father are a part of my new hotel project. This would be different if my father and sister own hotels and I own a grocery store 3 states away. This is a very simplistic example and provides an idea of what SBA is trying to accomplish. Consult your loan officer if you have questions regarding the Totality of Circumstances concept.


Affiliation – Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party (or parties) controls or has power to control both. For example, affiliation may arise through ownership, common management (including through a management agreement), or when there is an identity of interest between close relatives with identical, or substantially identical, business interests. The complete definition of “affiliation” is found at 13 CFR § 121.301(f)2.

Close Relative – Close Relative is a spouse; a parent; or a child or sibling, or the spouse of any such person.

Three years of business income statements, balance sheet and tax returns need to be obtained for each affiliate business, then reviewed for size standard determination. The use of Totality of Circumstances is fairly new and is having an effect on how our small business owners qualify for a loan thus we will want to obtain this information early in our review process.

From the SBA: “In determining whether to grant an exception from affiliation, SBA will consider the following factors:

  1. The volume of sales that the contract covers – SBA will consider whether the contract restricts
    the loan applicant from increasing its sales to the purchaser—particularly when the applicant
    has additional capacity—or expanding its operations to other activities or products.
  2. The contract’s termination provisions – SBA will consider the contract provisions that allow the
    purchaser to terminate the contract, including whether the purchaser may terminate without
    cause, whether the purchaser must provide advance notice of termination and the
    requirements for such notice, and whether there is an opportunity to cure prior to termination.
  3. The business’s right to profit from its efforts – SBA will consider whether the loan applicant has
    a right to profit from its efforts and whether the contract permits the purchaser to control the
    applicant’s ability to receive profits from its operations.
  4. The risk that the business bears under the contract – SBA will consider whether the loan
    applicant bears the risk of loss associated with being an independent business and whether the
    contract places risk on the applicant for areas within the purchaser’s control.”