SBA affiliation rules for business buyers

Affiliation is the SBA's term for control between businesses, and affiliated businesses are measured as one when deciding whether the borrower is small.

What are the SBA affiliation rules?

SBA lends only to small businesses, and it decides whether a business is small by counting the business together with its affiliates. Affiliation is the regulation's word for control: when one party controls another, or a third party controls both, the two are affiliates and their size is measured as one. A buyer who already owns a company, or who is buying with partners who do, can find that a business well inside the size standard on its own is over it once the affiliates are added.

The rules for SBA loan programs are in 13 CFR 121.301. The size standard itself can be met two ways: the industry standard for the business's industry, measured by receipts or employees, or the alternative size standard that applies to 7(a) and 504 loans, which as of this page's review is a tangible net worth of not more than 20 million dollars and average net income after federal income taxes of not more than 6.5 million dollars over the two preceding fiscal years. Both tests count affiliates.

What creates affiliation?

Control, established in several ways. The regulation names them:

• Ownership. Owning more than half of a business's voting equity controls it. Ownership of a large minority can too, where no other holder is larger.
• Stock options, convertible securities, and agreements to merge. These are treated as if already exercised, so an option to buy control counts as control today.
• Common management. A person who runs two businesses, or holds the officer and director positions that control both, makes them affiliates.
• Identity of interest. Close family members, or parties with common investments, may be treated as one party.
• Franchise and licence agreements. Depending on the degree of control the franchisor holds, though SBA maintains exceptions for standard franchise arrangements.

Some relationships are excluded by 13 CFR 121.103(b). The exceptions are narrow and specific, and a buyer who thinks one applies should read the text rather than the summary.

Why does affiliation matter to a business buyer?

For two reasons. First, size. If you or your partners already own businesses, the size test adds them together, and the acquisition can be ineligible before anyone looks at its numbers. Second, the personal guaranty. The personal guaranty rule applies to holders of 20 percent or more of the borrower, and the affiliation rules decide who counts as a holder when ownership runs through other entities.

The practical case is a buyer with a partner who owns a large company in another industry. On paper the partner is passive. Under the regulation the partner's ownership may make the two businesses affiliates, and the large company's receipts may make the target no longer small. That has to be known before a letter of intent, not after a lender has spent a month on the file.

How does a seller's retained stake affect affiliation?

A partial change of ownership, where the seller keeps a share, is an eligible use of 7(a) proceeds. It also keeps the seller as an owner, and an owner of 20 percent or more falls under the guaranty rule. The seller's other businesses are then in the affiliation analysis as well. A buyer offering the seller a retained stake to close the price gap should model both consequences before offering it. The financing guide explains why the structure of a deal and its price are separate decisions.

Which businesses are ineligible regardless of size?

13 CFR 120.110 lists the business types that cannot receive SBA business loans at any size: non-profits, businesses primarily engaged in lending, passive businesses owned by developers and landlords that do not use the assets, life insurance companies, businesses located in a foreign country, pyramid sales plans, businesses deriving more than one third of gross annual revenue from legal gambling, businesses engaged in activity illegal under federal, state, or local law, private clubs that limit membership for reasons other than capacity, government-owned entities other than tribal businesses, loan packagers earning more than one third of revenue from packaging SBA loans, businesses with certain associates in the criminal justice system, businesses in which the lender holds equity, businesses presenting sexual material of a prurient nature, businesses that caused a prior loss to the government on a federal loan, businesses primarily engaged in political or lobbying activity, and speculative businesses.

Read the target against that list on the first day. A business that is on it does not become eligible by restructuring the purchase.

Are the size standards changing?

They may be. SBA published a proposed rule on August 20, 2026 (91 FR 53741) revising size standards for 338 industries, with comments closing September 21, 2026, and a companion notice on the methodology. A proposed rule changes nothing until it is final, but a buyer whose target sits near its industry standard should know which direction the proposal moves it. The SBA business acquisition lending report records each quarterly rule check; this page will be revised when the rule is final.

What should a buyer do about affiliation before applying?

Write down every business you and each partner own or control, with percentages. Write down every option, convertible note, or agreement to merge that touches any of them. Give the list to the lender before diligence starts and ask for a written size determination. The cost of a wrong answer is a declined file after months of work, and the cost of asking is an afternoon.