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AFFILIATION RULES APPLICABLE TO U.S. SMALL BUSINESS ADMINISTRATION 

PAYCHECK PROTECTION PROGRAM 

Four tests for affiliation based on control apply to participants in the Paycheck Protection 

Program.1 For purposes of the determining the number of employees of an applicant to the 

Paycheck Protection Program, the applicant is considered together with its affiliates. 

Following is a summary of the applicable affiliation tests. 

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 the power to control both. It does not matter 

whether control is exercised, so long as the power to control exists. Affiliation under any of the 

circumstances described below is sufficient to establish affiliation for applicants for the 

Paycheck Protection Program. 

(1) Affiliation based on ownership. For determining affiliation based on equity ownership, a 

concern is an affiliate of an individual, concern, or entity that owns or has the power to control 

more than 50 percent of the concern's voting equity. If no individual, concern, or entity is found 

to control, SBA will deem the Board of Directors or President or Chief Executive Officer (CEO) 

(or other officers, managing members, or partners who control the management of the concern) 

to be in control of the concern. SBA will deem a minority shareholder to be in control, if that 

individual or entity has the ability, under the concern's charter, by-laws, or shareholder's 

agreement, to prevent a quorum or otherwise block action by the board of directors or 

shareholders. 

(2) Affiliation arising under stock options, convertible securities, and agreements to merge. 

(a) In determining size, SBA considers stock options, convertible securities, and agreements 

to merge (including agreements in principle) to have a present effect on the power to 

control a concern. SBA treats such options, convertible securities, and agreements as 

though the rights granted have been exercised. 

(b) Agreements to open or continue negotiations towards the possibility of a merger or a sale 

of stock at some later date are not considered “agreements in principle” and are thus not 

given present effect. 

(c) Options, convertible securities, and agreements that are subject to conditions precedent 

which are incapable of fulfillment, speculative, conjectural, or unenforceable under state 

or Federal law, or where the probability of the transaction (or exercise of the rights) 

occurring is shown to be extremely remote, are not given present effect. 

(d) An individual, concern or other entity that controls one or more other concerns cannot 

use options, convertible securities, or agreements to appear to terminate such control 

before actually doing so. SBA will not give present effect to individuals’, concerns’, or 

other entities’ ability to divest all or part of their ownership interest in order to avoid a 

finding of affiliation. 

                                                            

1 13 CFR 121.301(f).
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(3) Affiliation based on management. Affiliation arises where the CEO or President of the 

applicant concern (or other officers, managing members, or partners who control the 

management of the concern) also controls the management of one or more other concerns. 

Affiliation also arises where a single individual, concern, or entity that controls the Board of 

Directors or management of one concern also controls the Board of Directors or management of 

one of more other concerns. Affiliation also arises where a single individual, concern or entity 

controls the management of the applicant concern through a management agreement. 

(4) Affiliation based on identity of interest. Affiliation arises when there is an identity of 

interest between close relatives, as defined in 13 CFR 120.10, with identical or substantially, 

identical business or economic interests (such as where the close relatives operate concerns in the 

same or similar industry in the same geographic area). Where SBA determines that interests 

should be aggregated, an individual or firm may rebut that determination with evidence showing 

that the interests deemed to be one are in fact separate. 

Religious Exemption. The relationship of a faith-based organization to another organization is 

not considered an affiliation with the other organization if the relationship is based on a religious 

teaching or belief or otherwise constitutes a part of the exercise of religion. 

Waiver. The affiliation rules described above are waived for (1) any business concern with not 

more than 500 employees that, as of the date on which the loan is disbursed, is assigned a North 

American Industry Classification System code beginning with 72; (2) any business concern 

operating as a franchise that is assigned a franchise identifier code by the SBA; and (3) any 

business concern that receives financial assistance from a company licensed under section 301 of 

the Small Business Investment Act of 1958 (15 U.S.C. 681).