General Session V Affiliation and Franchise: A Roadmap to the Rule Wednesday, November 9 3:15 pm 4:30 pm Continental Ballroom 4-5

Transcription

1 General Session V Affiliation and Franchise: A Roadmap to the Rule Wednesday, November 9 3:15 pm 4:30 pm Continental Ballroom 4-5

2 Thank you to our Alliance Partners 2

3 Speakers Linda Reilly, Acting Director, Office of Financial Assistance and Chief, 504 Program U.S. Small Business Administration Babak Hosseini, Finance and Loan Specialist, Office of Financial Assistance U.S. Small Business Administration Rhonda Pointon, Vice President Regulatory Affairs & Training National Association of Development Companies 3

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5 Applicants seeking SBA assistance generally must be classified as small to receive: Management Assistance Procurement Assistance Financial Assistance Regulations on size are found in 13 CFR 121 5

6 The rule change: Separates and distinguishes affiliation requirements for financial assistance programs in new (f) 6

7 SBA Information Notice announced on July 27, 2016, SBA has created a separate rule of Affiliation for documenting that a small business is small for the SBA lending and Surety Bond Program. The following program now have a new affiliation rule separate from procurement and contracting: 7(a) 504 Microloan & ILPP, and Disaster Loans Surety Bond Guarantee Program 7

8 What Should a CDC/Lender Understand? The general rules of affiliation for financial assistance are different from procurement assistance: AND Specific ways control can create affiliation are different for financial assistance 8

9 What Does The Lender Have To Do? Determine Control of Applicant Control of any another businesses If yes, affiliation occurs Then combine applicant & all affiliate data to determine size of the applicant 9

10 121 Affiliation Based On: Change.301(f)(1) Ownership > 50% ownership Individuals - No longer combined with unrelated parties.301(f)(2) Stock Options and Agreements to Merge No change.301(f)(3) Management Clarified management includes Management Agreements.301(f)(4) Identity of Interest Only for Close Relatives per (f)(5) Franchise / License Agreements Franchise/License Agreement does not constitute affiliation Review Applicant agreements only.301(f)(6) Determining Size No substantive changes.301(f)(7) Exceptions to Affiliation No substantive changes 10

11 121 Affiliation Based On: Change.103(a)(5) Totality of Circumstances Replaced with specific guidance.103(g) Newly Organized Concerns Not in Rule*.103(h) Joint Ventures Not in Rule* * The rules still apply to contracting and business development programs, but were not included in the financial assistance programs rules to determine if affiliation exists. 11

12 May create affiliation if: Management by Agreement or Otherwise Applicant SBC manages another entity Management Agreement gives control to Management Company e.g.: Management firm controls all business functions Not Affiliation if: Management firm providing only non-essential activities not related to the actual business operations e.g.: Management firm performing billing for Medical practice, NOT providing medical services 12

13 May create affiliation if: Management by Agreement or Otherwise Applicant SBC manages another entity Management Agreement gives control to Management Company e.g.: Management firm controls all business functions Not Affiliation if: Management firm providing only non-essential activities not related to the actual business operations e.g.: Management firm performing billing for Medical practice, NOT providing medical services 13

14 What Does The CDC Credit Memo Need to Include? For the Borrower (or the EPC and OC): Disclose All Persons That Have Control of the Business Disclose All Entities That Have Control of the Business This permits review of compliance with the regulations 14

15 What Does The CDC Credit Memo Need to Include? Disclose All Businesses That Are Affiliates of the Applicant Business Other Businesses That Are Related, But Not Affiliates, Do Not Have To Be Listed. 15

16 For more information about the 504 Affiliation contact: Linda Reilly, Acting Director OFA and Chief of 504 Program Branch Babak Hosseini, Financial and Loan Specialist, 504 Program Branch Debt Refinance Resource page: Includes: SBA Responses to Q & A 504 Debt Refinance May 25, 2016 July 21, 2016 Find a Certified Development Company:

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18 What s Up Next Thursday, November 10 Announcement of the New NADCO Board of Directors 8:45 am 9:00 am Continental Ballroom 4-5 General Session VI Post-Election Congressional Analysis 9:00 am 10:15 am Continental Ballroom 4-5