SBA affiliation rules, explained

The rule in one paragraph

Section 121.103(a) is short enough to say plainly. Two concerns are affiliates when one controls or has the power to control the other, or when a third party controls or has the power to control both. The wording that matters most is "power to control." A majority owner who never interferes is still a controlling owner. SBA then lists the kinds of evidence it uses (ownership, management, previous relationships with or ties to another concern, and contractual relationships) and adds that it weighs the totality of the circumstances, so a finding can rest on several weak links that add up. The consequence is stated in paragraph (a)(6): SBA counts the receipts or employees of the firm whose size is at issue plus all of its domestic and foreign affiliates, whether or not those affiliates are organized for profit.

Control can be negative

Control is not only the power to make decisions. Under (a)(3), negative control counts, for example a minority shareholder who can block a quorum or block board or shareholder action under the charter, by-laws or a shareholders' agreement. The rule carves out protective rights: a minority holder who can only block extraordinary actions (adding an equity holder or raising an investor's stake, dissolution, sale of the company or all its assets, merger, bankruptcy, or amending the governance documents to remove those protections) is not treated as having negative control. A catch-all covers any other extraordinary action "crafted solely to protect the investment" and not to impede the majority's running of the business. Investors negotiating a term sheet should read that list line by line, because a veto outside it can create affiliation.

Stock ownership

Paragraph (c) turns ownership into a presumption. Someone who owns or can control 50 percent or more of the voting stock, or a block that is large compared to the other blocks, controls the firm. If several people each hold less than 50 percent in equal or roughly equal blocks, and together those blocks are large compared with any other holding, SBA presumes each of them controls the firm, a presumption that can be rebutted by showing control does not in fact exist. If stock is widely held with no large block, the board and the CEO or president are deemed to hold the power to control. Options, convertible securities and agreements to merge, including agreements in principle, are treated as if already exercised (paragraph (d)), but agreements merely to open or continue negotiations are not, and neither are rights that are speculative, unenforceable or extremely remote. You also cannot avoid affiliation by pointing to an ability to divest.

Management, family and dependence

Common management (paragraph (e)) arises when officers, directors, managing members or partners who control one firm's board or management also control another's. Identity of interest (paragraph (f)) covers people or firms with identical or substantially identical business or economic interests. Firms owned or controlled by spouses, civil-union parties, parents, children and siblings are presumed affiliated if they do business with each other, such as subcontracts or joint ventures, or share or lend resources, equipment, locations or employees. A "clear line of fracture" between the firms can overcome that presumption, and the text says other family relationships are not grounds for affiliation on family relationships alone. Economic dependence is a separate presumption: SBA may presume identity of interest if a firm derived 70 percent or more of its receipts from another concern over the previous three fiscal years. The tool above computes that ratio. The regulation's own examples show how it is rebutted: a nine-month-old firm with two contracts, one with Firm B worth $900,000 and one with Firm C worth $200,000, is over 70 percent dependent on B, but the presumption is rebutted because the firm is new; a five-year-old firm with 195 of about 200 contracts from Firm B would most likely be found affiliated unless it shows it is free to sell to others.

Newly organized concerns, joint ventures and franchises

Under (g), affiliation may arise when former or current officers, directors, principal stockholders, managing members or key employees of one concern organize a new concern in the same or a related industry and the older concern furnishes or will furnish contracts, financial or technical help, bond indemnification or facilities. A key employee is one with critical influence or substantive control over operations or management. Joint ventures (h) must be in writing, do business under their own name, and generally may not take contracts beyond two years from the first award without the partners being treated as generally affiliated; offers submitted before the two years end can still be awarded afterward. Populated joint ventures that are not made up entirely of similarly situated entities are ineligible for set-asides, and a populated joint venture's size aggregates its partners. Franchises (i) are treated gently: standard quality, advertising and accounting requirements generally do not create affiliation if the franchisee has the right to profit from its efforts and bears the risk of loss commensurate with ownership, though common ownership, common management or excessive restrictions on selling the franchise can.

What the rule excludes

Paragraph (b) lists exceptions. Examples include businesses owned by licensed SBICs or qualifying development companies, tribe, Alaska Native Corporation, Native Hawaiian Organization and CDC-owned concerns (as to common ownership and management), companies leasing employees from a leasing firm or using a professional employer organization, SBA-approved mentor-protege arrangements, member shareholders of a small agricultural cooperative, and faith-based organizations whose relationship rests on religious teaching or belief. Each has conditions; read the paragraph before assuming it applies.

What the rule does not say

Section 121.103 does not give a numeric safe harbor. There is no ownership percentage below which affiliation is excluded, and the checklist above can only show which paragraphs to read; it cannot find a firm independent. Loan applicants should also know that for SBA business loans, disaster loans and surety bonds, the size standards and bases for affiliation are set in 121.301 (paragraph (a)(8)), which counts a more-than-50-percent owner and certain 20-percent owners in the same three-digit NAICS subsector. See the loan size page. SBIR and STTR use 121.702.

Worked example

Suppose Firm A averages $4 million in annual receipts and Firm B, owned by the same individual who owns 60 percent of A, averages $3 million. Paragraph (c)(1) puts control at 50 percent or more, so the individual controls A, and B shares that controller; for a receipts-based standard SBA would add the two, $7 million, to compare with the standard for the NAICS code in the solicitation. See how SBA calculates annual receipts for the averaging. If the standard were lower than $7 million, A could not qualify, even though it stands alone under the line.

Sources

• 13 CFR 121.103 (eCFR, issue date 2026-10-29): How does SBA determine affiliation? Read November 2, 2026.
• 13 CFR 121.301 (eCFR, issue date 2026-10-29): Size standards and affiliation principles for financial assistance programs. Read November 2, 2026.

Edition read: 13 CFR part 121 as published in the eCFR, current to the issue date October 29, 2026 (read November 2, 2026). Regulations change; check the current eCFR text and the solicitation or loan program rules that govern your situation. This page explains the regulation in plain language and does not replace it. Review needed: business-law YMYL page, not yet reviewed by a qualified professional.