SBA loan size eligibility

Two routes for 7(a) and 504 applicants

Section 121.301 starts from the Small Business Act's definition of a small business concern: independently owned and operated and not dominant in its field. It then sets the tests for financial assistance. For 7(a) loans and Development Company (504) programs, paragraph (b) gives an applicant two ways to qualify. The first is the ordinary industry test in paragraph (a): the applicant alone must not exceed the size standard for its primary industry, and the applicant combined with its affiliates must not exceed the standard for either the primary industry of the applicant alone or of the applicant and its affiliates, whichever is higher. The second is the alternative: including its affiliates, tangible net worth not in excess of $20 million and average net income after Federal income taxes, excluding any carry-over losses, for the preceding two completed fiscal years not in excess of $6.5 million. Both parts of the alternative must be met. The checker above tests exactly that, using the thresholds as printed in the eCFR text of October 29, 2026.

How the net income is figured

The alternative is based on net income after taxes, and the regulation anticipates pass-through entities. If the applicant is not required by law to pay State (and local) income taxes at the enterprise level, multiply its net income by the marginal State (and, if applicable, local) income tax rate that would have applied if it were a taxable corporation. Then multiply net income, less that state and local amount, by the marginal Federal rate that would have applied if it were a taxable corporation. The sum of the two results is the notional tax, which is subtracted to produce net income after Federal income taxes. In other words, a partnership or S corporation cannot compare its raw profit to $6.5 million; it first reduces profit by the taxes a regular corporation would have owed. The checker takes after-tax figures, so do that step first. Carry-over losses are excluded from the average, so a prior loss carried forward does not lower it.

Why affiliates matter here

The alternative standard counts affiliates, so net worth and income of every affiliate are included. Paragraph (f) lists the affiliation principles that apply to Business Loan, Disaster Loan and Surety Bond programs. A business that owns more than 50 percent of the applicant is affiliated with it, and so is any business the applicant owns more than 50 percent of. Where a business entity owning more than 50 percent also owns more than 50 percent of another business in the same 3-digit NAICS subsector, all are affiliated; an individual owning more than 50 percent of the applicant and of another business in that subsector triggers the same result. If no one owns more than 50 percent, an owner of 20 percent or more that operates in the same 3-digit subsector (or owns more than 50 percent of such a business) is affiliated. Spouses' and minor children's interests are combined, and pro rata ownership through entities is counted: in the regulation's example, Jane Doe holds 15 percent directly and owns all of Jane Doe, Inc., which holds 50 percent, so she is treated as owning 65 percent. Stock options, convertible securities and agreements in principle to merge count as exercised, but agreements merely to negotiate do not, and you cannot avoid affiliation by pointing to an ability to divest. In sizing the applicant, SBA counts receipts, employees or the alternative measure of the applicant and all of its domestic and foreign affiliates, whether or not organized for profit. For the full list of general affiliation concepts see SBA affiliation rules.

Other programs and add-ons

Other business loans and non-physical-damage disaster loans use paragraph (a) only. SBIC applicants may use the industry test or $24 million of tangible net worth with average net income not above $8 million. Surety bond applicants must meet the size standard for the primary industry of the business combined with its affiliates. The standards for financial assistance programs, except surety bonds, are increased by 25 percent when the applicant agrees to use all of the assistance within a labor surplus area on the Department of Labor's list. Paragraph (g) gives COVID-19 EIDL loans a separate definition of affiliate (50 percent equity or profit rights, or contractual control, determined as of arrangements in existence on January 31, 2020).

Worked example

An applicant and its affiliates have tangible net worth of $19.9 million and after-tax net income of $6.0 million and $7.0 million in the last two fiscal years. The average is $6.5 million, which is not in excess of $6.5 million, and net worth is below $20 million, so the alternative is met. At $20,000,001 of net worth, or a $6.51 million average, it fails, but the applicant could still qualify under the industry test.

What the rule does not say

This section is size only. It says nothing about credit, collateral, use of proceeds or the lender's requirements, and it does not define tangible net worth beyond the term itself, so ask the lender how it computes it. For payments and rates see the 7(a) loan calculator.

Sources

• 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.