There’s been confusion about the rules governing eligibility for SBA Section 7(a) loans, which we’ve elsewhere written about.1 That confusion focused on whether to conduct “affiliation” analysis under Section in Title 13 CFR §121.301 (“Section 301(f)”) or §121.103 – the right answer is Section 301(f)).2 But there’s added confusion because the Section 301(f), as it now appears online and in print, is outdated and, therefore inaccurate. What follows is a “bootleg redline”3 (showing Section 301(f)’s revised text marked against the currently available version) and a brief explanation of both why the redline remains relevant and how we got here.

TLDR: Section 301(f) was enacted in 2016, amended February 10, 2020 (with an effective date of March 11, 2020), but the CARES Act repealed those amendments, reverting Section 301(f) back to the old rule on March 27, 2020.

Why it Matters: Applicants in SBA's Business Loan Program, including applicants for 7(a) loans under the Paycheck Protection Program (“PPP”), must apply the size standards and bases for affiliation appear in Section 301(f). While the $349 billion program “ran out of money”4 on the date we’re publishing this, the review and continued importance of the affiliation rules will endure because (1) enforcement officials, regulators, and private party plaintiffs will review the accuracy of affiliation determinations, which borrowers have certified (see “PPP Loans For Startups/Growth Companies—Former Attorney General’s Perspective—Lessons From Hurricane Sandy & 9/11”)5 and (2) borrowers and their investors will be required to provide representations, warranties and indemnification in subsequent transactions (venture, private equity, mergers and acquisitions, public offerings) as to their compliance with these rules as they were in effect at the time the relevant company (and its affiliates and/or 20% or greater equityholders) submitted the loan application. We say ‘as in effect at the time’ because the U.S. Department of Treasury recognized that the rate of change as new law, final rules and clarifications were released was breathtaking. Accordingly, Treasury has clarified that borrowers and lenders generally “may rely on the laws, rules, and guidance available at the time of the relevant application.”6

Brief History of Section 301(f)
SBA announced a proposed rule on October 2, 20157 (with a request for comment), ultimately issuing Section 301(f) on June 27, 2016 as a Final Rule (the “June 2016 Final Rule”), which took effect on July 27, 20168 to amend:

“regulations pertaining to the determination of size eligibility based on affiliation by creating distinctive requirements for small business applicants for assistance from the Business Loan, Disaster Loan and Surety Bond Guarantee Program (“SBG”). For purposes of this rule, the Business Loan Programs consist of the 7(a) Loan Program…”9

February 2020 Interim Rule: SBA published an Interim Final Rule on February 10, 2020, which took effect March 11, 2020 (the “February 2020 Interim Rule”)10, to amend Section 301(f). However, Section 1102(e) of the CARES Act11 repealed the February 2020 Interim Rule in its entirety, without providing further clarification or referencing specific sections. In the rush to implement the legislation, SBA did not publish the rule as revised by that repeal. As a result, lawyers were left to either find an old version of the once-superseded June 2016 Final Rule or to read the amendment to determine which aspects of the published version of Section 301(f) the short-lived February 2020 Interim Rule had altered. Without a published version of the post-CARES Act version of Section 301(f), there was also confusion as to whether or not §121.301(f) had reverted to its formulation under the June 2016 Final Rule. On April 4, 2020, the Office of General Counsel Office of Procurement Law on behalf of SBA issued a Letter regarding Size Eligibility and Affiliation under the CARES Act (the “April Letter”),12 which provided clarity (in a footnote,13 nonetheless):

“the CARES Act rescinds the changes that SBA made to § 121.301(f) through an interim final rule published on Feb. 10, 2020. See Pub. L. 116-136, § 1102(e). Thus, references are to the pre-2020 version of the regulation.” (Emphasis added).

The April Letter’s affiliation analysis specifically relies on the June 2016 Final Rule rather than the February 2020 Interim Rule.

The below REDLINE shows Section 301(f) as NOW IN EFFECT (the June 2016 Final Rule or “Current Rule”) marked against the now rescinded February 2020 Interim Rule. Many had (quite understandably) initially reviewed the now rescinded February 2020 Interim Rule upon release of the CARES Act (and PPP).

Some Explanation of Changes You’ll See in the REDLINE:
The first substantive change appearing in the REDLINE in §301(f)(4) contains additional changes not necessarily shown in the REDLINE due in part to their subtlety. For example, the REDLINE indicates that the excerpt: “Where SBA determines that interests should be aggregated…” was added back in the Current Rule. Yet that phrase was never deleted in the first place. That phrase appears in red in the last sentence of what was previously sub-section (4)(i), and in blue in the last sentence of the current sub-section (f)(4). The key change here is that the Current Rule’s concept of “affiliation by identity of interest” only considers close relatives (with substantially identical interests), whereas the Now Rescinded February 2020 Interim Rule had expanded the rule to also include “two or more individuals or firms” with substantially identical interests.

We mentioned above that the Current Rule rescinded the “Totality of Circumstances” provision, which was §301(f)(6). Our REDLINE does not renumber.

The REDLINE Does NOT Show Additional Exceptions: Note also that this REDLINE does not include the handful of additional affiliation exceptions which the CARES Act added under Section 1102(a)(36)(D)(iv) to waive the affiliation rules for: (i) any business with not more than 500 employees that is assigned a North American Industry Classification System [NAICS] code beginning with 72, (ii) any business operating as a franchise that is assigned a franchise identifier code by SBA, and (iii) any business that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 681).14 Our reasoning here is two-fold: (1) our current understanding is that those types of provisions primarily apply only during the “covered period,” (defined as February 15, 2020 – June 30, 2020 under the CARES Act) whereas the February 2020 Interim Rule was rescinded permanently; and (2) exceptions to affiliation for purposes of 7(a) loans do not fall under Section 301 – they fall under Section 103(b). Again, we understand this is confusing because at the top of this article we wrote that affiliation for 7(a) loans is determined under Section 301 – that is true, but the last sentence of Section 301(f) (no matter which version of Section 301(f) you review) clearly states that “For exceptions to affiliation, see 13 CFR 121.103(b).”15

To summarize, at a high-level, the “changes” made in repealing the February 2020 Interim Rule:

  • The changes to “affiliation based on identity of interest,” as outlined above;
  • Completely striking the concept of affiliation based on Common Investments;
  • Completely striking the concept of affiliation based on the “newly organized concern rule;” and
  • Completely striking the concept of affiliation based on a “totality of the circumstances.”

Meet the New Rule, Same As the Old Rule:
The following REDLINE shows Section 301(f) as currently in effect, marked against the pre-CARES Act version. We expect that the new law, as revised, will come online soon. Also, because we’re not in the business of publishing law (we advise on and analyze law), please note that this is an unofficial version as of April 8, 2020 and we’re providing it for convenience (rely at your own risk).

To see our other material related to the pandemic, please visit the Coronavirus/COVID-19: Facts, Insights & Resources page of our website by clicking here. 

1 See Matthew J. MoisanEd ZimmermanLowell A. CitronKimberly E. Lomot, and Raymond P. Thek, SBA Section 7(a) Loans for Venture Capital Backed Growth Companies/Startups Under the CARES Act, (Mar. 31, 2020).

2 See Ed ZimmermanWait What?! Treasury Clarifies ‘Affiliation’ Rules For SBA Section 7(a) Loans (& Startups Are...), FORBES (Apr. 4, 2020, 9:52 PM).  Both of the foregoing cite 13 C.F.R. Section 121.103(a)(8) and U.S. Department of Treasury then issued guidance confirming that analysis in numerous places, for instance Treasury’s April 8th FAQ, U.S. DEP’T OF TREASURY, PAYCHECK PROTECTION PROGRAM LOANS, FAQ, Question 5 (Apr. 8, 2020),, and Treasury’s Interim Final Rule on Affiliation, U.S. SMALL BUS. ADMIN., SBA-2020-[  ], 13 CFR PART 121.301, BUSINESS LOAN PROGRAM TEMPORARY CHANGES; PAYCHECK PROTECTION PROGRAM 6 (Apr. 4, 2020),  Note however that exceptions to affiliation, even for applicants in SBA’s Business Loan Program, is still governed by Section 121.103(b), as further referenced below.

3 Redline available HERE

Andrew Duehren, “Funding Exhausted for $350 Billion Small-Business Paycheck Protection Program,” Wall Street Journal (April 16, 2020).

5 Ed Zimmerman, Chris PorrinoElie HonigKathleen McGeeKim Lomot, and Lowell Citron, “PPP Loans For Startups/Growth Companies—Former Attorney General’s Perspective—Lessons From Hurricane Sandy & 9/11,” Forbes (April 14, 2020, 9:43 p.m.)

6 See Treasury Department’s “FAQ” (p. 6, April 15, 2020). Answer to Question 17.

7 SeeAffiliation for Business Loan Programs and Surety Bond Guarantee Program,” 80 Fed. Reg. 59667 (October 2, 2015).

8 See Affiliation for Business Loan Programs and Surety Bond Guaranty Program, 81 Fed. Reg. 41423 (June 27, 2016) (to be codified at 13 C.F.R. §§ 109, 115, 120-21).

9 For clarity, the June 2016 Final Rule only amended the affiliation rules with regards to the Business Loan, Disaster Loan and Surety Bond Guarantee Program.

10 See Express Loan Programs; Affiliation Standards, 85 Fed. Reg. 7622 (Feb. 10, 2020) (to be codified at 13 C.F.R. §§ 103, 120-21).

11 Section 1102(e) states, in its entirety: “(e) INTERIM RULE. On and after the date of enactment of this Act the interim final rule published by the Administrator entitled ‘‘Express Loan Programs: Affiliation Standards’’ (85 Fed. Reg. 7622 (February 10, 2020)) is permanently rescinded and shall have no force or effect.”

12 See Letter from John W. Klein, Assoc. Gen. Counsel for Procurement Law, U.S. Small Bus. Admin., to William M. Manger, Assoc. Admin. for Capital Access (Apr. 4, 2020).

13 Id. at 2 n.2, where the Office of General Counsel confirmed that “[T]he CARES Act rescinds the changes that SBA made to §121.301(f) through an interim final rule published on Feb. 10, 2020. Thus, references are to the pre-2020 version of the regulation.”

14 See also BUSINESS LOAN PROGRAM TEMPORARY CHANGES; PAYCHECK PROTECTION PROGRAM, supra n. 2, at 10, which temporarily exempted faith-based organizations that might otherwise be considered affiliates under 13 C.F.R Section 121.103(b) for purposes of participation in the PPP.

15 See 13 C.F.R. § 121.301(f)(7) (This link will take you to the text of 13 C.F.R. §121.301 as formulated under the June 2016 Final Rule).