Since SBA published the amendments to 13 CFR 121, we’ve waited for the Agency to clarify whether to include the Eligible Passive Company when doing an affiliation analysis for an EPC/OC loan. Given that an EPC is by its nature passive and so not an eligible applicant, we have consistently advised our clients that only the Operating Company be examined for affiliation and size standard.

 Still An Open Question? Several SBA lenders have looked to a higher authority for clarification. The issue is admittedly confusing as the applicant must be small (13 CFR 120), and both the EPC and the OC are considered the applicant for an EPC/OC loan.

 At Last, Clarification. We were in on a recent conference call where SBA clarified that only the Operating Company is examined for affiliation and size standards. The EPC is not examined. That makes sense and is consistent with the guidance we have given our clients.

Here’s the process:

  1. Determine the NAICS of the OC;
  2. Using the new regulations, determine which operating entities are affiliates of the OC;
  3. Determine whether the applicant alone and the applicant and its affiliates meet either the Industry or the Alternative size standards.

Remember that NAICS codes are used for other government programs and other statistical purposes. So in determining the NAICS code, use the code the business uses for itself. (See page 4 of IRS Form 1120; page 1 of an 1120S; or on Schedule C for a 1040.)

Determining the Maximum Loan Amount. Maximum lending is an entirely separate issue. In determining the maximum loan amount for any applicant, all SBA loans (504 and 7(a), including Community Advantage) made or pending for both the EPC and OC count toward the limit.

SBA considers the EPC and the OC to be one business, and all loan guarantees, committed or outstanding, are included in calculating the loan limits. (Remember that there are higher loan limits for 504 loans meeting Eligible Energy Public Policy goals, i.e., “Green Loans,” and 504 loans to small manufacturers.)

All clear? If you need further guidance in untangling this and other complex issues, we’re here. Contact JRB.

Richard Jeffrey
Senior Associate
Head Underwriter