{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-the-control-principle-trigger-affiliation-for-purposes-of-determining-a-business-","api_url":"https://dealroom.so/api/public/questions/how-does-the-control-principle-trigger-affiliation-for-purposes-of-determining-a-business-","question":"How does the \"control\" principle trigger affiliation for purposes of determining a business's size standard?","topic":"Affiliation & size","audience":"lender","bot_mode":"lender","short_answer":"Control, whether positive (majority ownership) or negative (blocking rights), triggers affiliation when one party has the power to direct the management or policies of another entity, regardless of the extent of ownership.","rule":"13 CFR 121.103 states that affiliation arises when one business controls or has the power to control another, or a third party controls both. Control can be evidenced by majority ownership, contractual agreements, common management, or even familial relationships. The SBA considers both actual and potential control.","example":"Company A owns 40% of Company B, but the operating agreement grants Company A veto power over all major decisions. The lender determines Company A controls Company B, making them affiliated for size standard purposes.","what_lenders_check":"Lenders must analyze all ownership documents, operating agreements, and management structures to identify actual or potential control relationships that would trigger affiliation. Failure to identify affiliates can lead to an incorrect size determination and a guaranty denial.","required_facts":["Majority ownership","Negative control","Veto power","Contractual agreements","Common management"],"source_families":["13 CFR Part 121 - Small Business Size Regulations","SOP 50 10 - Lender and Development Company Loan Programs","Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule"],"official_sources":[{"title":"13 CFR Part 121 - Small Business Size Regulations","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-121"},{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"Affiliation and Lending Criteria for SBA Business Loan Programs - Final Rule","url":"https://www.federalregister.gov/documents/2023/04/10/2023-07173/affiliation-and-lending-criteria-for-the-sba-business-loan-programs"}],"related_questions":[{"question":"When does a contractual relationship between two businesses trigger affiliation for size standard calculations?","url":"https://dealroom.so/for-lenders/questions/when-does-a-contractual-relationship-between-two-businesses-trigger-affiliation-for-size-s"},{"question":"How does ownership of options or warrants affect affiliation determination for SBA size standards?","url":"https://dealroom.so/for-lenders/questions/how-does-ownership-of-options-or-warrants-affect-affiliation-determination-for-sba-size-st"},{"question":"What are the size standard requirements for a business applying for a 7(a) loan if it operates internationally?","url":"https://dealroom.so/for-lenders/questions/what-are-the-size-standard-requirements-for-a-business-applying-for-a-7-a-loan-if-it-opera"},{"question":"What specific scenarios involving shared directors, officers, or key employees constitute 'common management' triggering affiliation for SBA size determination?","url":"https://dealroom.so/for-lenders/questions/what-specific-scenarios-involving-shared-directors-officers-or-key-employees-constitute-co"},{"question":"Under what conditions does a shared economic interest trigger affiliation for SBA size standard purposes?","url":"https://dealroom.so/for-lenders/questions/under-what-conditions-does-a-shared-economic-interest-trigger-affiliation-for-sba-size-sta"},{"question":"How does the 'totality of the circumstances' rule apply when determining affiliation for SBA size standards?","url":"https://dealroom.so/for-lenders/questions/how-does-the-totality-of-the-circumstances-rule-apply-when-determining-affiliation-for-sba"}],"related_terms":[{"term":"Control principle","url":"https://dealroom.so/glossary/control-principle"},{"term":"Business size standard","url":"https://dealroom.so/glossary/business-size-standard"},{"term":"Size standard","url":"https://dealroom.so/glossary/size-standard"},{"term":"Small business size standard","url":"https://dealroom.so/glossary/small-business-size-standard"},{"term":"Size standard compliance","url":"https://dealroom.so/glossary/size-standard-compliance"},{"term":"SBA size standard","url":"https://dealroom.so/glossary/sba-size-standard"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/how-does-the-control-principle-trigger-affiliation-for-purposes-of-determining-a-business-","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}