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SBA Loans - What Qualifies as a Small Business

Written by: Harlan Friedman

Article Overview: I wanted to address what qualifies as a Small Business under the SBA guideline. As new rules and regulations are adopted for SBA Loans, the key point of what qualifies as a small business is always being addressed and updated.

SBA Loans - What Qualifies as a Small Business

To qualify for an SBA Loan you must prove that you are a small business. Many businesses which could be considered small business actually are too large for SBA Funding, and therefore we would look for other commercial or conventional sources. For those businesses that fall under the Small Business Guidelines, there is no better loan available to day. Especially now as they have once again instituted the SBA Guarantee Fee waiver till at least February of 2010. Also there is a great deal of legislation bantering about that my increase the SBA 7A loan amount ot as high as 5.0 million from the existing 2.0 Million cap that is in force today.

In general, the following criteria are used by SBA to determine if a concern qualifies as a small business and is eligible for SBA loan assistance:

The Applicant Must Be Small Under SBA Size Requirements (13 CFR Part 121)

1. The applicant business alone (without affiliates) must not exceed the size standard for the industry in which the applicant is primarily engaged AND the applicant business combined with its affiliates must not exceed the size standard designated for either the primary industry of the applicant alone or the primary industry of the applicant and its affiliates, whichever is higher. Affiliation exists when one individual or entity controls or has the power to control another or a third party or parties controls or has the power to control both. SBA considers factors such as ownership, management, previous relationships with or ties to another entity, and contractual relationships when determining whether affiliation exists. The complete definition of affiliation is found at 13 CFR 121.103. (See also, 13 CFR 121.107 and 121.301)

2. The applicable size standards are increased by 25% when the applicant agrees to use all of the financial assistance within a labor surplus area. Labor surplus areas are designated by the Department of Labor.

3. For most retail businesses, the applicant and its affiliates cannot exceed $7.0 million in gross sales averaged over the last 3 fiscal years.

4. For most wholesale businesses, the applicant and its affiliates cannot have more than 100 employees.

5. For most manufacturing businesses, the applicant and its affiliates cannot have more than 500 employees.

6. When size status of an applicant is determined: (13 CFR 121.302)

a) The size of an applicant for SBA financial assistance is determined as of the date the application for such financial assistance is accepted for processing by SBA. Changes in the size of the business subsequent to the applicable date when size is determined will not disqualify an applicant for assistance.

b)If the Small Business Applicant is an existing business and is using the proposed loan proceeds to acquire another business, the sizes of the two businesses are combined to determine if the application is size eligible.

c) For the Preferred Lenders program and the SBA Express program, size is determined as of the date of approval of the loan by the lender.

d) Pilot Loan Programs (presently Community Express, Export Express and Patriot Express) size is determined as of the date of approval of the loan by the lender.

7. Formal size determinations (13 CFR 121.303)

a) By signing the application, a small business applicant is deemed to have certified that it is small under the applicable size standard. SBA or lender may request additional information concerning the applicant's size based on information supplied in the application or any other source. A preferred lender or SBA Express lender may accept as true the size information provided by an applicant, unless credible evidence to the contrary is apparent..SBA defines a small business as one that is independently owned and operated and not dominant in its field. A small business must also meet the employment or sales standards developed by the Small Business Administration and based on the North American Industry Classification System (NAICS).

Even though the SBA-qualifying standards are more flexible than other types of loans, lenders will generally ask for certain information before deciding to use an SBA loan program. Visit our website loanforbiz.com to see what additional documentation is needed and to see if your business qualifies as an SBA Eligible business. Remember Non-Profits do not qualify for any SBA Financing.

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Article Tags: SBA 7A Loans, SBA Loans, Small Business, Small Business Defined



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